CHEAP MONEY AND SETTLEMENT.

Dominion, Volume 5, Issue 1413, 13 April 1912, Page 6

CHEAP MONEY AND SETTLEMENT.

TWO SIDES TO EVERY QUESTION. DOUBTFUL HKXEI'ITS. (Contributed.) At a valedictory meeting with the officers of one of tho Government: Departments a few days ago, Sir Joseph Ward seems to have taken great credit to himself, his Government, and the "Liberal" party for Inning reduced the rate of interest on money in New Zealand. Xn doubt to some extent that credit is justly claimed. But is tho Government or the "Liberal" party entitled to all the credit? In the natural course of events, as the productivity and wealth of the country increased, the rate of interest was bound to become lower and to decrease to a reasonable rate. Whenever nnyono has ventured to suggest that the Government has caused the rate of interest to be reduced too low, ho is at once decried by our "liberal" friends as a "Conservative" and a retrograde. The writer is "neither the one nor the other: he claims to bo as radical in his views as any member of any of the present parties in Parliament. What tho views of the Keform party may be on the subjects dealt with in this article he neither knows nor cares; and the opinions expressed are those merely of an individual who endeavours to take a patriotic interest in the country to which he belongs. Bringing Down the Rate of Interest. The writer takes the liberty of derogating from the claim made by Sir Joseph Ward, and if he can make out the case that he proposes endeavouring to make, then he says that the members of the present Government and of the "liberal" party as at present constituted, as they claim the credit, must equally share the blame, if blame there be, for the consequcnces of Sir Joseph "Ward's policy. Ho savs that in bringing the rate of interest down to 41 per cent, (with certain exceptions which will bo referred to later), having regard to the partial stago of the development of this country and to the rate of interest that capitalists can obtain in other countries ill a somewhat similar stage, or eve.i a mora advanced stage, of development, tho Government has made a serious mistake; and it is proposed to show that, in doing so, tlitJ Government has been guilty: (a) Of driving capital away from this country, (k) Of acting detrimentally to the interests of the widows and orphans of New Zealand, (c) Of benefiting the comparatively wealthy settler and the owner of city and suburban lands to the disadvantage and detriment of the small bona fide country'settler, (d). Of preventing that closer settlement of the lands of the Dominion which we all desire to see, and which the Government has professed to have been desirous of accomplishing. Land Settlement. During a period of several years a number of estates were conipulsorily acquired under tho 1.-ands for Settlement Act for closer settlement, but it is quite a long , time since the Inst acquisition was made. One reason has been tho complaint of the Government that the Compensation Court always fixes a price which, according to the Government view, is excessive; and another reason probably is that the Government borrowings have been so great for other purpo'ses that it could not borrow tho further large sums that would have been required for the prosecution of a vigorous land purchasing policy. The Government then devised another means whereby it became entitled to purchase estates 011 the basis of the valuations in the valuation rolls (plus a certain percentage), giving the owners tho right of fixing their own values upon which tliev ara compelled to pay taxes in the event of the Government not purchasing. The result has not been successful. because the owners , lmve placed high values 011 their properties—too high for- the Government to pay, but not too high for. the owners to pay taxes on sb long as seasons are good and prices ot produce reasonably high. A Suggested Expedient, There may bo some justicb in the complain; of the Government regarding the Compensation Court; but tho vice is in the system which places upon tho Bench as part oi the Court two assessors who, instead of being impartial, are generally mere advocates for the respective parties by whom they are appointed. The result is that the President of tho Court, a Supreme Court Judge, instead of having two impartial experts to advise and assist him, ha? presumably to . endeavour to arrange a compromise between two partisans. The State should not, and does not, object to pay a fair and reasonablo price lor land that it conipulsorily acquires—but bow to ascertain that price, and to ensuro that the price paid is not in excess of what is fair and reasonable, is the. difficulty to be overcome. And it can be overcome in a perfectly simple manner. The writer is aware of an expedient that was devised somo time ago by a barrister with somo experience of compensation cases that would effectively overcome the difficulty, and at tho saino time produce a system absolutely fair to all parties. Legislation would be necessary, of course, to effect the alteration from what is now admittedly; though not always consciously perhaps, a partisan Court (so far as the assessors are concernled), to a Court that would be judicial as Ito nil its members. The Registrar of the Supreme Court at Wellington could, with the assistance of the Registrars in' tho other judicial districts, compile anI nually oue list for the whole Dominion ' of persons fit and competent to act as assessors in compensation cases. Upon the application for a date of hearing in each case, the Judge who was to preside would himself select from tho list two persons to sit with him as assessors, subject, of course, to the right of either party in the case to object to any individual* for good cause. The assessors under somo sucil system as this would be Judges, and not, as at present, mere par. tisaus and advocates. The scheme no doubt requires some slight elaboration, but that is a matter of. detail only, and not of principle.

The State Lending Departments. The Government has three great lending Departments: (1) Tlio Advances to Settlers' Department. (2) The Public Trust Office. (3) Tho Government Life Insurance Depal tment. Now, for what purpose was the Ad winces to Settlers' Department originollv established? For tho purpose of borrcwing money in large sums, and lending that money on mortgago at a low r?tc of interest to assist small and struggling settlers. Later on, the scope of the Department's operations was enlarged, to enable it to lend money at tho same lowrate of interest to workers, ?nd also (inter alia) to lend money at a iow into to local bodies for purposes of a public nature. The writer sympathises and agrees with all these three objects, which aie the legitimate objects of the Department. But what lias the Ifipnrimcjit in point of fact done with a very large prilion of its funds? Thero is not in the present Act, nor was there in :ny of the repealed Acts, a definition of (he term "settler," but tho original Act (the Government Advances to Settlers Act, 1891) shows what tho founders of tho system intended, because it provided that ] "tho business of the Advances to Settlers Office is tlio' advancing of money on first mortgage of . . . land, not being urban and suburban lands . . Tlmt indicates plainly that loans wore to bo made only to bona fide country settlers. It was not until the amending Act of 1889 was passed that tlio Department was authorised to lend money on the security of urban or suburban lands. Tinder tho Act of 18M the maximum sum thatcould bo lent (io nny one borrower was '£2500, and this, as already shown, to a bona fide settler nnlv. Under tho Act of 189!) tlio maximum amount of n loan on the security of urban or suburban lands , vas JV2OOO. Tn 190(5 a consolidating and amending Act was passed which empowered the Department to inak» advances wnerallv on freehold and other clones of lnmls. That Act was reproduced in the Consolidated Act. of IDOS, and is now 1 embodied— though perhaps not in precisely the same form—in the New 7-pn- • land State Guaranteed Advances Act, 1009. Methods Pursued. 1 It has be«n assumed since 11)00, rightly I w irrQMl;> that tha Hoswtmcat m

been empowered to lend money on the security (if urban and suburban lands as well as rural lands. Assuming that view to tie correct, then (the Acts containing no special provisions as to the limit to be advanced on urban and suburban lands), the maximum amount of loan, which by the Act of 11100 was £11000, has been applicable to those clas-es of lalid as well as to rural lands. The result has been that the Department has power, on a three-fifths basis, to make advances to landowners, whether in the country or ill cities or suburbs, whose land is worth £5000 or upwards. It is well known that moneys which must aggregate a very largo sum—how much it is impossible to sa.v without a carefully-com-piled return—have been lent to persons on the security of city and suburban lands; nor is it possible to say, without a similar return, how much has been lent to persons on those securities wiio are worth .L'so(>3 or upwards. Is it any wonder that the Department has from time to time been unable to satisfy the requirements of the country settler, for whom the Government, particularly during election campaigns, expresses sucli deep commiseration? The system was "never intended (it is submitted) to enable the Department to lend money to the wealthy, and surely a person owning land of the value of .£SOOO or upwards, at all events if tho land is city or suburban land, is a compirativeiy wealthy person. It is at least questionable whether, under such a system as that of Government advances, £3000 is not too large a sum to be lent to anv individual country settler, It is true flint applications for loans not exceeding ,£SOO have priority over applications for larger sums, but there is not a sufficient protection for the small settler, because at a given moment there may bo enough uloney to satisfy all the applications then before tho Department, including a number of .£3OOO each on rural, city, or suburban lands, and within a few days a large number of applications for sums not exceeding .£SOO may come in, and the money is no longer available to satisfy them. Again, assuming that the Department has power to make advances on the security of city and suburban lands, the Act contains no provision that priority shall be given to country settlers. And what has been the result? The system has befriended not only the comparatively ■wealthy country settler, hut also the speculator in citv and suburban lands, and has thereby been a contributing factor to the artificial boom in the price of land which has operated so detrimeutally to the small man desirous of settling on tho land, and to the worker. .There is' special provision made by the law that loans may be mnde to workers up to £450, and to this no exception can be taken. But should not the operations of the Department bo again clearly limited by legislation (apart, from loans to workers and local bodies), to the purpose for which it was originally established, namely the- advancing of money on mortgage to bona-fide country settlers? And, in order to prevent wealthy persons from obtaining the advantages intended for the small anil struggling man, should not the term "settler" be defined as a person owning rural land of the aggregate value of not more than, say, £2500? That would enable tho applicant to obtain a loan up to £1500, which would then be enacted as the maximum that could be lent to any one borrower. Of, if it is thought that £3000 is not too large an amount to advance to any one person, substitute £5000 for £2500 in tho definition."

Widows and Orphans Suffer. Tho Public Trust Office and the Government Life Insurance Department lend moneys on mortgage, without nny restriction as to the nature, occupation, or means of borrowers. In tho former case, the moneys lent aro largely inado up of funds which the Public 'J rust Office holds as h'nsleb for the benefit of widows ami orphans of deceased persons whose estates fall into its hands. In the latter case, tho motley's lent are the surplus funds which belong ultimately to the widows find orphans of those who have effected insurances on their lives, in the Government Life Insurance office. The writer believes he is right in saying that tho limit (if there be a limit) to the. amount lent to nn individual borrower is, in tho reuse of tho Public Trust Office, not less t'haii .CM,000; and in the case of the Government Life Insurance Department, there is '-tatutorv power' to lend up to ,€IO,OOO. Both these Departments lend their moneys, 110 matter how wealthy tho borrower niav be, at 4.V per ccnt., though in times of "stringency they occasionally raiso tli9 rate to 5 per cent. But, in order to effect this' object, and to keep down the price, of money for wealthy persons, what has tho Government to do? Though empowered by statuto to fix a raio not higher than 0 per cent, per annum 011 moneys arising from an estate 011 an amount not exceeding J53000, or higher than 1 per cent, per annum on tho excess, it has to limit tho rate of interest payable to tho beneficiaries whoso affairs the Public Trust Office manages as follows:— On capital moneys belonging to a testate or intestate estate, or held under any deed of trust or settlement:— • (a) Whilst held minors or persons under disability or for beneficiaries not entitled to payment at call or on - demand—4V per cent, en sums up to <£3000, and 4 per cent, on sums in excess of .£3OOO. (b) Whilst held payable in the ordimry 'course of administration for distribution or at call— !t per ccnt. whatever tho amount. On capital moneys belonging to the estates of lunatics, 4 per cent, whatever the amount. Those same beneficiaries, generally ■ widows and orphans, if their affairs were in tho hands of private trustees, assuming that thero wero 110 unfair Government competition, would receive at any rate 5 per cent, on (heir money. The fact is not over]joked that the Public Trust Office has tho advantage of the State guarantee to the beneficiaries that their principal will v.ot lie lost by broaches of trust, but does that justify the Government, in order to leiui money to wealthy people at the low rate of 41 per cent., in 'reducing from 5 per cent, (up to which it is entitled to pay) to per cent, the interest payable to the poorest class of its beneficiaries, viz.—those whose capital docs not. exceed <£3000. These observations apply also in a general way to the case of tho "Government Life Insuranco Department. It is submitted, therefore, that the lending operations of the Government luivo resulted, and will result, to the great benefit of the wealthy, and to tile great detriment of the widows and orphans of the community. What is Reasonable. ' The "question then comes: What is a reasonable rate of interest for the private lender to charge? If he leuds jnonoy at ii per cent., lie has to pay a' mortgage tax of Gs. 3d. por centum, so that his net return is only <£4 3s. 9d. por cent. The time may come when that will be considered a" reasonable rate, but that tinio is not vet. A private lender considers that ho should be able to make a net return of 5 per cent., and that certainly does ■not seem unreasonably high. In order to obtain it, ho has to lend at not less than ,£5 Gs. 3d. per cent., or, say, not more than 51 per cent. If he cannot earn 5 per cent, clear in New Zealand, ho will send his money to other countries, where he. can earmit; and to the knowledge of, bankers, lawyers, and business men in the community, this is what has been happening in this Dominion for some years past. And what has been tho result of all this? As soon as and whenever the coffers of tho State lending Departments become low, there is practically no private monev available, up goes the rate of interest, and tho Dominion suffers a period of financial depression. How is it possible for a country like this to be developed on such lines? Yet all this is well known to be the case, but our politicians apparently fear to approach tho question because they may be met with the accusation that, they are trying to raiso the rate of interest. It must be obvious that, if wo aro to depend on the funds of tho Government lending Departments, and if private capitalists are not to bo encouraged, by a reasonable return for their money, to keep their capital in the country, close settlement can never be accomplished. And now what is the remedy? (1) The acquisition of large estates, after tho Compensation Court has been reconstructed by appropriate legislation in such si way as to ensure that I lie Str.to will pay no more than a fair and reasonable price. (■J) Payment of that price with, the funds oi' tho Public Trust. Office and the Government Life Insurance Departments, again alter the passing of such enabling legislation (if any) as may be necessary. The Government should pay 41 per cent, interest 011 lho funds so used, nnd the benefici- . arieii of the Department! would bennfit coMidsubir taUii thus sould,

be no mortgage lax payable. It innv be argued thai H per cent. would bo a .liigli rato for the Government to pay, but there would be no brokerage, no commission, and no other loan-raising charges payable, ami the public would knuw exactly what they were paying. Moreover, the Act empowers _ the raising ol money at a rate of interest up to per cent., and, after all, that rato does not seem excessive in tho light of the statement made by the present Prime .Minister at Stratford, as to tho ruling rate for loans raised in England during last year. Twenty-six millions, he said, were floated at from 4 per cent, to 4' s per cent., and thirtv-three millions at from ii per cent." to 5 per cent. Ho also said that twentv-six millions were iloated at from 3-i per cent, to 4 per cent., and that tliN amount included Sew Zealand's five millions. • But if the ruling rato was from 4 per cent, to 4', per cent., and New Zealand raised five millions at from IH per cent. to 4 per cent., we doubtless had to pay tho difference in the form of discount. On tho whole, therefore, especially considering the other advantages that would accrue, the country would bo doing reasonably good business by taking tho Public Trust and Government Life Insurance moneys at per cent. If necessary, somo of the surplus funds of the Post Office Savings Bank might also be used for tho purpose of paying lor lands compulsorily acquired. (3) The continuance of the operations of the Government Advances to Settlers Department, with the restrictions that loans are to 1» made only to country settlers and bona-fide workers, to the extent of, say, not more -than .£ISOO (or, if not considered too large a sum, -£3000), to any individual settler, and not more than £450 to any individual worker, in each case at 4J per cent. . (4) The funds of the Public Trust Office and Government T.ife Insurance Department that are not usea for tho acquisition of lands to be lent on mortgage at either £5 6s. 3d; per cent, or s £-. per • cent. Tho Result. The result would be:— (a) The solution, or partial solution, of tho difficulty that lias been experienced in acquiring and settling the large estates. (b) An improvement in the income of the widows and orphans whose interests are hold by tho Public Trust Office and the Government Life Insurance Department. (c) The retention of private capital in the Dominion for development parposes. (d) The interests of the small settler and the bona-fide worker would be conserved; and , M There would be no detriment to anyone except persons of • substantial means, who would , have to pay from £5 6s. 3d. to £5 10s. per cent., instead nf from .£4 10s. to £5 per cent, upon their borrowed moneys, and ■ such persons .would ■ still be borrowing money nt a reasonable rate of. interest, and could well afford to pay the difference.