STATE LOANS.

Dominion, Volume 6, Issue 1574, 18 October 1912, Page 3

STATE LOANS.

PARLIAMENTARY INQUIRY. MR. KEMBER'S EVIDENCE. SOME STRENUOUS DENIALS. The Public Accounts Committee of the House of Representatives continued "its inquiry .yesterday into the ndininislriition of tho .State Guaranteed Advances Department, under past Governments. Mr. J. B. Hine presided. Also present were tho llun. Jas. Allen, Sir J. Ward, Dr. A.' Iv. Newman,, Mr. A. M. Myers, Mr. J. Craigie, Mr. E. F. lee, Mr. J. Hanan, and .Mr. E. Newman. Sir J. Ward continued his examination of Mr. J. W. Foynton, Superintendent of the State Guaranteed Advances Department. The first reply elicited was that on all loans ndvanced by tho Department since 1908 capital and interest had to be repaid in full by the local bodies.' Under the old local bc<ly loans system local bodies' paid no sinking fund, but they paid some extra interest. On a 2G years' loan the local body paid 4J per cent., although the State had paid per cent. The 'difference would not cover' half of the sinking fund required to repay the loan. & Dnder' instructions from Sir Joseph Ward (in 1011) witness endeavoured* to get some of the banks,to take money in the hands of flic Department, for investment. He could not get the banks to take the moiiey.

Amounts available from the Post Office for investment during tho last threo years ended December '31 were, respectively, ,£075,(100, ,£512,000, .£283,000. For the "last threo financial years (ouded March 31) the respective amounts available from the Post Ofiico were :-r-v£400,000, ,£975,000,-and .£222,000. During the administration of Sir Joseph Ward ho found no inconvenience in meeting commitments ahead. -There had been' no delav on'tho part of Sir Joseph Ward, as Minister for Finance, in finding money for commitments ahead. He did not recollect anv cases in which the preliminary applications .for a loan had been made through a Minister. If such application were made, the Minister would send it to the Department, and the forms would lie s?nt to the local body. There would lie .no other interference by a Minister. If a local-body-were, required to tako n loau at an unfixed rate of iutercst n sufficient margin could be taken in fixing the ralo to-meet any reasonable rate of interest. He saw 110 reason why a local bodv should not provide for a margin of G per cent, in raisin? a loan. 1 lie local bodies knew that the State could get money cheaper than tho wealthiest corporation. A Campbelltown Loan. Sir Joseph Ward now referred to a loan to the borough of Campbelltown. Was he present at the meeting when this loan .was approved?—No, you were absent in England. . ' ■ * ' Sir J. Ward: Then if a statement were ma'do by a Minister of the Crown in tlio Hoiise'.that' that loan was refused .because my seat was a safo ouc, would .thevo ba any. ground for'that aspersion.?—^o. Mr. Allen: Is the suggestion that a Minister of tho Crown made that aspersion? • ■ ' ■ , , Sir .1. Ward said that it was made by the Minister for Customs. He would not sav aspersion, he would say statement. To Hie Hon. .Tas. Allen: Mr. Foynton said that ho adhered to his statement on the previous day 'that in. view of the opinion-given by-the Solicitor-General the board would have.to stop lending until it bad monev ill band: Mr. Allen: Can you not borrow? Mr. Poynton: Wo can .borrow for ten Vears ahead. ... Mr. Allen: Do you think it a wise thing to sav tliat von would'refuse loans? Witness said that the board would bo reluctant to entertain loans until tho mohev required had been obtained. Mr." Allen: Can I get-money from tho Post-Office? Mr. Foynton: I think that'jll that yon can get from the Post-Office-\vill be'required to meet engagements. The Department's- Losses. Mr. Allen: Is it correct to sav that under this system the local Tjotly pays back the whole of the loan? —Yes. Is any loss made?—Thero may bo some. Has there been some already?— No. lias there not been a loss of <£22,000 already ?—That is not the fault of tho local body. The local body borrows -£1005 and pays* back ,£IOOO. The loss of the De'partme'nt has nothing to do with the local body: The Department may have an enormous loss or it may have none at all. Jlr. Allen-: The Department has som'o losses now?— Yes.

Mr. Allen: Do the local bodies pay back that loss?—Xo; it has nothing to d,o with tlicJ local bodies.

Sir Joseph Ward: Surely yon should not attempt to put a confusing issue! It is a very confnsing issue, Mr. Chairman, and -I don't think it is a fair thing, ilo continued that the witness had repeatedly .stated that local bodies had to pay tho whole amount borrowed, including the samo rate of interest.

Mr. lline said that the witness was 'at liberty to give his answers either to Sir Joseph Ward or. Mr. Allen. Sir J. Ward said that tho losses had been' made on the non-investment of moneys. - .

Mr. Allen: I said the Department made a loss. The witness said so too. Witness said that the loss might be very large. I want to know if the local bodies pay back the loss of the Department. Mr. Poynton: No; they pay back the money they borrow with interest on it. Mr. Allen: What becomes of instalment repayments of capital that local bodies pay' back every year? Mr. Poynton said that the Public Trustee got one per cent, of the capital raised by the Department. Amounts repaid by local bodies were reinvested, less . tho amount paid to the Public Trustee.

. Mr. Allen: Is there any authority under the Act to" repay these sums to the Advances Office?

Mr.. Poynton said that lie could not point to a clause in the Act. It was the practice, in the office. One could not get a clause in tho Act for everything done. The same practice prevailed in the Advances' to Settlers and. Advances to Workers.. In his memorandum to tho Committee, witness had suggested several amendments. One was that the capital should be taken back from the ?.üblic Trustee (who already had receive!! 520.000 odd) aud reinvested by tho board. Hepayments of principal were not s&own in the account. They would appear as cash in hand. There was no special account showing the reinvestment of these amounts. .

To another question Mr. Poynton said that when local bodies took a loan poll they did not state the rate of interest to be paid. No loan had been raised in England under the State Guarantee. He did not think any such loan e-ver would be raised. Mr. Myers asked whether ho, as Minister for' Finance, had attended any.meetings of the Advances Board?— No. •3 Attendance of Ministers, To Mr. Leo: The Minister for Finance under the Act was a member of tho board. A majority of the meetings were not attended by the Minister. He wished that the Minister would come. i It was neither to tho credit nor discredit of the Minister that he did not attend the board. Tho Minister did not attend because he was too busy. Mr. Allen said that personally he would l>e glad to -attend the board meetings if lie could find time. So far he had not been able to do so.

Mr, liCe referred in the circular sent out to local bodies in March.last to inform them that loans at 3\ per cent then provisionally approved, could only be gone on with at 3} per cent. Witness assented to a 'statement that the board had previously considered itself morally bound to want loans provisionally approved. Mr. Lee: In what way did this moral obligation. cease in March. Mr. Poyntofli.We.hadn't the money. To Mr. Hfmni): Ho had received a letter tram Mr. Allen about a Clutlia district loan.. When Mr. Myers was Minister ho sent a telegram about a Hastings loan. A Clutha County Loan. Mr. Allen's letter was rend. It stnteil that tlio Clutlm County Council desired Io borrow .EHOOO from the Advances Department < for wading purposes. TTo did not know whether Hie application had gone to the. Peparlinpnt. Could it be favourably considered ? Mr. Fomton *n.irl that tli« Department replied that a a application had Been re-

coived from tho Clulha County Council for 11 loan of XlOtlO. As tho Council luul already hart a lonn of .£,lOOll provisionally approved, only .f'JOOO additional could 1» granted. Sir. Allen: Was llicro any further letter from mo?— No.

Mr. Allen: Or aiiy communication from mo?— None. ' Mr. Allon: Did"l speak to you about it? —No. To Mr. TTnimn: Mr. I'oyntoii said that: in Id's opinion it wns not necessary that, (ho Iward should immediately censo making advances, hut other members ol the board might think dilTerently. lie urged that, the Aet. should be amended in view of the expressed opinion of the highest legal oflieer of the country that the pro. eeediiiM of the hoard hail been irregular. Mr, H. Kcmber Called. Tho next witness called _ was Henry Koniber, a member of Hie State Guaranteed Ailvances lionrd. Mr. Ketnber said that he had been a member of the board since ils inception, no had never been subjected to political pressure in connection with the operations of tho board. Ifo had never been asked by n Minister or member to assist n lonn. There had been no squandering of money by the board. It. had given applicants what they were entitled to under tho law. nothing more and notliing less. There had been no favouritism of boroughs. Tho bnnrd had granted to the back-blocks every cent Ihe.v hud ever asked for. Had the board not granted Timant .£11(5,000 out; of the .£IBB,OOII that, borough applied for, the board would have lost ,£lti,(Hlo more than it. hail lost. He had seen no waste in the operations of the Hoard. There had I>oon 110 loss by non-payment of interest or loss of security. There had been a !os,s of ,£22,000 on uninvested money.

To Mr. Myers: Witness was the only independent member of the Beard—Hie only man who sot his living outside the Board. lie did not see why ho should have his character taken away by ils being said that he had put this money into Timaru for political purposes. He felt that his honour had heen impugned without, any justification at all—ho had never drenmt of political influence. ' Ho had studied the thing as much as any man, and could not see how politicnl influence could possibly come about with the advances to local authorities.

To Mr. Ilanan: A Minister could not possibly approve n loan Hint, was not recommended by tho Board. The Minister could please himself about Approving a lon 11 recommended liy the Hoard. It na> no business of the Beard whiit the Minister did. The Rcmuera Loan.

To Dr. Newman: All loans were approved at a meeting of the Board. Dr. Newman: In connection with tho' Kemuora loan of ,£42.0(10. was not a paper font round to each member of the licard for approval? Witness: What nro you alluding to? Dr. Newman: Was that loan approved by individual members putting their signatures to it, and afterwards approved at a Board meeting? Witness: Well, 1 don't remember that. Can you tell mo tho dato at which it happened ? I was away from nine meetings—l was travelling through tho country. Dr. Newman produced the file Telating to tho ■ loan, and bearing Mr. Komber's signature. Mr. Kember: Yes, that is my signature. Yes, I don't seo that thero is anything wrong in that. Dr. Newman: I am not asking you that.

To further questions, witness said that tho Board members did not individually approvo tho loan. They only agreed that it should bo approved by the Board. lie quoted the concluding portion of the memorandum which was sent round by tho Superintendent, and signed by individual members: "Will you bo kind enough to express your approval of this file being submitted for tho purposes mentioned." Dr. Newman: Then you approved of it to be confirmed at the next meeting?— Yes. Dr.' Newman: -.Were there any other cases liko this?—l don't remember any. Dr. Newman: This was an exceptional case?— This was an exceptional ease. Loans and Elections. To Mr. Allen: The board did not makearrangements as to when ft loan was to be paid. Tho board did not know whether a loan was to be paid to-morrow or any other day. 'The superintendent and Minister made tlio arrangements with regard to tho payment of loans. Mr. Allen: If a loan is inado payable partly in 1911, partly in 1912, and finally in 1913, tho responsibility is with the superintendent and the Minister, and not with tho board?—" Quite so." Mr. Alton: You remember that your objection was to statements made in the House?—" Yes."

Whom did you refer to?—"In the first place to Mr. Allen. Mr. Allen stated that .£37,000 was paid to Kemuora three days before the election. Kemuera before the election never received one penny. Therefore I say that Mr. Allen made* a mistake—or a mis-statement— which he should not have done."

Mr. Allen-. Are yciu quite sure that Mr. Allen said that?—" The papers nro here. lam only going by what tho papers said. It was a dccided reflection. llow can you say it was not said?" After some hunting among papers, Mr. ICember produced a copy of the "New Zealand Times," dated September 28, and quoted from a report a statement that Mr. Allen had said that .£37,000 wits paid to Kcnmera fhree days before the election. Mr. Allen; That is what 1 am reported to have said?—" Yes."

Mr. Allen: Don't you think that as I am chairman of your board you should havo first written to me to ask what I did say?

Mr. ji ember said that the other papers spoke of "diabolical outrage." Mr. Allen: I did not uso "diabolical." Mr. Kember: As you were chairman of the board, why did you want to throw discredit on us?

Mr. Allen: I did not want to throw discredit on you. I wanted to got at tho truth.

Mr. Ivember again alluded to the statement about tho Kemuera loan of <£37,000, remarking, "That seems to mo quite sufficient to damn us. Wore we to stop our business just bccauso an election was going on?" Mr. Allen said that what ho had said was that a.Kemuera loan of iC12,000 was finally approved on November 17, and a loan of .£37,(100 finally approved on December 4, three days before the election; .Mr. Kember: Quito so, that is true, but you did not say so, ilr. Allen, according to this Toport. I saw this (the report) which I knew to bo untruo.

Mr. Allen: How long after was the money paid to Kemuera? Was it within a month ?—'"Very likely." Mr. Allen: In view of what I have nowsaid, don't j'ou think it would have boen wise to write to me?

Mr. Kember: Everyone was 6atisfied that you had said it. Mr, Aden: Well, now I tell you that I did not say it. Mr. Kembor: I am sorry that you were reported to have said so. As I only read one paper on that Saturday, I was very much disgusted. llr. Allen: Was it reported to you that Sir John Findlay had ielegraphul to . tho Prime Minister?—No, I knew nothing about it. He did not telegraph to me.

In further examination, by tha chairman and other members of the committee, Mr. Kember oxpressed tho opinion that tho ,£SOOO limit applied only to loan applications at any one time. He considered that n county potting J!5000 might take 'somo six months to expend it. It ivonld then bo open to tho local body, it it could furnish security, to apply for ;i further loan, and tho application woutd be considered on its merits. He gave ; this as his individual view. He could not | kpeak for the board. •_ I Several members of the committee said ! that the board did not pursue the policy i in regard to the JCSOOO limit, which Mr. Kember had indicated. A Borough Representative. Tho next witness called was Mr. W. 1(.,| Gahagan, mayor of the borongh of Sprey- : lion, near Christchurch. He stnted that | when Spreydon was a road district it had ! endeavoured to raise a loan for develop- j ment purposes, and had failed lo do s:i. j A loan of .G20,u01) obtained from the State ■ Advances Olßco had materially advanced the prosperity of the district. The money : could nut have been secured from any nthcr source at less than tivo and a half , per cent, interest. The expenditure ■ the man had provided good residential conditions for a larce population. The money was .-pent on regr.nlua(f im) ividenins roa/b, footpath'. ■in*l .Eur'acs-ivatsv drainajfl. Iso joliutiL ifc ;.

tluenco "was used by tho borough in obtaining tho loan. The application was uindo direct to tho Department. At 1 p.m. tho committee adjourned, on tho iinilorsUinding that it should seek llit permission of tho House to yit for an hour in the afternoon, A Formor Auditor-General, Tho desired permission was obtained, ulid the committee resumed its sitting at: 4l' ' 11 - , I ho first: tvilnofs called was ,1. IC, Warbur lon, formerly Audilor-tieneral, Kir J. Ward, Iu» staled that he had hlled various oilier* under (In- lioverulii4*n(♦ If at <ui,v time he had observed liny utlenipt at political inlluenee or any wasto or sMjiuiiiderini,' of money lie wotihi certainly have slopped it. On the Advnhres Hoard, lie had not at any limo boon by a Minister or any other person to use his inlhienee in eonuoetion with the granting of u lean. There was no political pressure upon him at any time. Thcro had been no wiurto or derin# by Ihe board. Kvery loan bad been granted in accordance with tho law. He saw nothing unusual in the proceduro followed in connection with the Hemucra loan when a iilo was sent round to individual members for npproval subject 10 con!jrnmlion at u meeting of tho board. Similar things had been done by other boards on which lie had acled.

To Mr. ],eo: He did not recollect another case in which the mine procedure was adopted by the Advances Hoard. Mr. l.ee asked witness (o stale, specifically what charges of political influence had been made against Iho board. Witness said that lie could not say specifically without referring to the newspapers.

In further examination witness said that ho was satisfied with the general management, of the Department up to dale.

Questioned by Dr. Newman regarding the Wairon Harbour Board loan of .£78,000, which was at first refused by tho board mid afterwards granted, witness said lie was under the impression tlmt in altering ils decision tho board had been guided by expert advice. All that he could say was that he was satisfied, and the board was satisfied with (he security.

To .Mr. Allen: Tho Superintendent reported that he could get money from the. Post Ollico at 34 per cent, lie did not, say for what, period he could get it. Asked whether lie considered that tho board had done right in lending money to be paid in 1913 or 1911, witness said that this was a question for tho Administration. Tlicy had large .sums in hand, and had'to choose between holding it or lending it. Mr. Allen: Hut did you mean to hold the money until 1913 or Hilt?

Witness: We had to assume that we could continue to borrow at !){ per cent. To another question, he said that if the board had held tho money, it would have lost;.34,per cent. Kven if it. had to borrow later at four per cent, it would lose only one-half per cent. Mr. Allen: Borrowjng at four per cent, you would have to lend at less than the rate at which you borrowed. Do you think that would be legal ? Mr. Warburton: 1 don't know whether it would bo legal. The £5000 Limit. At Mr. Allen's request, witness read tlio resolution passed by the board in November, that in granting future loans to local bodies, preference should bo given to those local bodies to which loans have already been granted, the limit to remain at ■£5000 and the rato of . interest 3} per cent. Mr'. Allen: If a local body had got a loan before that, could it get any money afterwards?—No, I think not, on this. Mr. Allen: Aro tho board quite agreed about this?—l think, so, that is my view of it. Valuer-General Ebamined. Mr. F. W.' Flanagan (Valuer-General) was next examined. He said that ho had been u member of iho State Guaranteed Advances Board lor twelve months. Ho had never had any political representations made to him -about the granting of loans by a Minister, member of Parliament, or any other person. ' The beard hnd'takon the vipw that so long as money was available and the statutory requirements had been complied with, loans should bo. 110 had only been a member of the board'since' tho imposition of tho =£5001) limit. No money had been' squandered by tlio board, and there had been no waste. Ho considered-that the boai'd 'was well managed.

To -Air. E. Newman: He understood that tho ,£SOOO limit was to last until the money market became easier. To Mr. Allen: lie regarded the board as morally bound to grant loans at the rates at which they had been provisionally approved before he joined the board. No information was given to him about tho Kemuera loan, lie saw no telegram from Sir John Fiudlny. He did not remember a lound-robin being sent round asking members of the board to approve the Kemuera loan. He had seen no' roundrobin.

Mr. Allen produced the memorandum about the Remuera loan sent round to members of the board by tho Superintendent, asking, "Did you ever see that?" Mr. Flanagan: I had forgotten that. Mr. Allen:,ls that a round-robin? Did you sign it?

Mr. Flanagan: It had escaped my memory for the timo being.

Mr. Alien: Do you think it a wise proceeding, when you meet every Monday ?— Yes, in certain circumstances. It is done in every Department. To Mr. Hine: He did not think that the board was justified in making loans for years ahead of that in which it was operating.

The committee adjourned until 10.30 a.m. to-day.