LOCAL BODIES' LOANS.

Dominion, Volume 6, Issue 1821, 6 August 1913, Page 8

LOCAL BODIES' LOANS.

• -AN IMPORTANT BILL THE SECOND READiNG DEBATE. The Hon. JAS. ALLEN moved the secontlrefklxiig' 6f;;.the' Local Bodies' /Loans Bill,' In answer to Mr. 4 Russell,'/lie -add that he did not intend to refer the Bill to the. Statutes. Revision Committee. Tho Bill'was ono of two divisions, into which the State Advances .legislation had been divided. It wns <i mschincry Bill dealing with, loans, to local bodies,, and embodied the' whole of .the loans to kcal bodies Bill" (the State Advances Bill)..,dealt/with.. tho' raising. of money, and with advances to settlers and wbrkexj. . The. -Minister! went' on to' explain the conditions under -which the Government proposed to guarantee certain local body loans. From inquiries he had made when in London, he had gathered that;.the . effect of tlio State guarantee might be to'retluce the rate of interest to ft'weal" authority from one-half to one per oent. As drafted, the Bill provided for borrowing only in London, but hd was willing to give local bodies • power to raise loans of amounts up to about <£20,000 within'..?. T ew'Zwilapd. Tlu.maximum amount be' borrowed in one year; under guarant?o'was half a tmilliori sterling. He warned hon. members that the Government guarantee, could only be . Used witli caution, j To "flood v.the. London market withjgnaranteed.''ldeal- body loansmight have a serious effect on national' loans. Proposals to raise guaranteed loans would bo submitted in the first instance to the Aflvnijces, Board and,.ultimately., to the Minister;''who would : take the-re* eponsibility' of .'deciding .whether .» loan, should be; agreed'.to or not." Ho anticipated that, bv mea'iis of theigirarantee, local bodies wrifiUl! able to obtain money nearly, if'iiqt (Jfiito, a*-cheaply as from the Advances: Department. 1 ..New provisions in lhans raided by a past <at & district,-.and . with tho ; raising of;*'jpint; special loans" by local todies in Combination. -<Anothor> now'-pro-vision waiithat ithere the ratepayers in a local district had anthorised"tho- raising of -a loan from a" pnec.'fied lender, the same authority ;should;liold pood in raising tho loan fronv .hnothjr The Bill provided lean mado by the Advances Department to \d loral bodv should I>9 taken up within" fix months. Hitherto no limit of the hod been imposod. Sir Josenh Ward entered tho House whilo the Minister was speaking, and was Thrived by Opposition members with applause. • • An Opposition View. Mr. G. ;W. RUSSELL (Avon) said that ha was not at all, sure .that the Minister in preparing the Bill had. realised the magnitude ,of the borrowings of the local bodies. At tho iend of 1910 these .borrowings totalled 15 millions. In asking the Jlinister to explain; the .clauso providing for a limitation of half a million a year, he had been under tho impression that limitation,; iwns intended to apply to the borrowing l - of a .singlo local body. In this connection ,hd».had'-h-ad;:iil mind :the . financial operations of some of tha.big harbour boards*'of- the Dominion. •'■'lt' would be* impossible to obtain sufficient money under the guarantee of half a million a"year. Speaking of the failure of tho Post Office.as.a source.of.supply for the Advances Department, Mr. Russell asserted that for >tho» last" tliTee quarters withdrawals had exceeded deposits. Tho Qovernm»nt had thus not only lost the use of £iQO,OOO in deposits,, but had been, comoelleil to find an equal amount in withdrawals. This, failure of a sum., of <6800,000 Wtfs at the bottom of all the cry that had been raised about commitments. Mr. Russell went on to contend that people who lived in tho smaller towns and boroughs were just as much entitled to oheap money as the people Mho lived n the country. ; If the Government unduly restricted the borrowings of local bodies they would cut down tho wages S V the country and unemT>Wment Minister had not; ex-. 835dWW«**tf advances Fe"isktion had been found Unworkable. TfWtJtius armprovision ha 9 never, bees operative,

Mr. Russell said that anything tending to prevent the money market being depicted was a good thing. A member: The Minister-said he proposed to borrow here! Ths Minister: We will borrow where we, can get money. .. Mr. Davey: What about tho ,£50,000 from the Loan and Mercantile? , ■ Mr. Russell:. Don't raise, a painful subject! '• The Prime Minister: That is not a painful subject. I wiah we could get some moro! . , , Good Intentions. Mr. Russell said, that they had started the week in a good frame of inind, and were going to give the Government, a good run with legislation. They had put through two Bills'which they could havo debated until midnight. The Government, he continued, had practically transformed tho Advances ' Department into a Local Government Board. This course lie approved.. At the last Local Government Conference it had been' shown that one town spent a large- sum in establishing a .municipal theatre and in other ways, without spending a penny on drainage. A proper inspection beforehand would make it possible-to reasonably restrict the borrowing of local bodies. He hoped that before long the system of Parliamentaryvotes for roads and bridges would be abolished. j ■ Borrowing Developments. : The PRIME MINISTER congratulated tho member for . Avon upon the decision whieh"he had announced on his own behalf and that of his party, of giving the Government a good run with its legislation,., On his part, he would promise that tHo Government would supply the Houso with' plenty of good material. He went on to trace the history of the legislation governing tho borrowing of local bodies. The old Loans to Local- liodies Act; "which!remained in force for twenty years, was intended solely to finance .new works. As time went on, members representing districts other than those intended to benefit under the Act, brought pressure on the Government to widen the scope of the Act. Under the State Advances Act very large sums, were borrowed by some local bodies. The natural result was that in the end'the limit of .£SOOO had to be imposed. In his, opinion the imposition of the limit wjs made necessary by the fact that some 'harbour boards and other local'bodies which were -very well able to borrow for themselveshad obtained from the Government money which should have been reserved for weaker local bodies. The Prime Minister defended the limitation of pointing out that some local bodies needed no assistance. He cited the'.case of Timaru, which recently wanted .£IOO,OOO, and within a' few days sccured .£50,000 at five per cent, per annum. As to the loan obtained from the Loan and Mercantile' Company; the position was a very simple one. Ths company in question found themselves in possession Of. a certain • amount of money which they did not, at the moment, require. They offered'it to the Government per cent., without any charges or discount. Ho considered that the Finance Minister arid his _ Department,' have',b£?ri' itgH' foolish if tlie.r had'" refused the'offer. 'If the hon. .gentleman (Mr.'Russell) or any of his friends knew anv institution willing to lend money in the same way, the Government would be very glad to havo it. . . Mr. Russell: I- will call on. them, and toll them! - Mr. Massey: I hope the hon. gentleman will use his influence with his friends. Mi;. Russell: il will call on the member for Wairarapa to-morrow! The Post Office. Eegarding the Poet Office, the . Prime Minister said that to-day, and for a couple of months past, deposits had exceeded withdrawals. .' Mr. Myers: That,is because you raised the interest. 'Mr. Massey: We raised the-interest to a slifht extent, and it was right to do so, but, in any case, deposits during the last two mouths have been considerably in. excess of withdrawals. Mr. Massey mentioned that at December 31, 1012, deposits in the Post Office Savings Bank totalled .£10,330,257, an increase of .fi787,070_ on the eorresoonding date in '1911. What lmd happened in .the Post O/lice was just what might: have l»een expected. The rata of interest had risen in New Zealand ni> in other parts of the world, and Post OSice depositors had been tempted to withdraw in order to obtain a higher rate of interest. The rate of interest had bscn high during the past year, but no higher (if as ' high) than -it was in 190S and. part of 1909. To his personal knowledge ns much as ten per cent, had been paid by borrowers with good security in those years. One great cause of increases, in the rate of interest was that the".price of land was very high, as high, lis'it was likely to bo' for a long time to come. In consequence many mortgagors, hundreds of them, who had paid only a f-sinall sum towards the purchase, of their holdings, were unable to redeem mortgn»6s upon' their properties when they fell duo and consented instead to renew at high rates. Neither the. Government nor any lending institution could possibly deal with cases of this kind because Hie security was not there.

The Member for Awarua, I SIR JOSEPH "VVAJtD asked leave, tofore addveising himself to the subject before. tlio -House, to pay his tribute to the memory of the late Sir Arthur' Guinness. He'also congratulated the neiv Speaker upon his appointment. Going on to deal with' the subject of loans to loca' bodies, 'Sir Joseph Ward said that the half-mil-lion limitation proposed in the Act, though, it might be nil that the Treasurer could afford to go for tho time being, was undoubtedly inadequate. The PfiftlE MINISTER intervened to point out iihat the guarantee of -C500,00Q was to be additional to any sums which tho r Government found it possible to lend to local bodies. Sir Joseph Ward said that 110 loan could be raised upon the London Stock Exchange for on individual local body if it to less than .£IOO,OOO, and oven so tho amount' of tho charges would make it undesirable to raise that sum. If the guarantee were made applicable to local borrowing tho amount guaranteed would bo withdrawn from circulation. A State guarantee was not regarded as well 'in .'London as would be direct responsibility by tho State in regard to a loan. In view of- a statement which had beon made by tho Prime Minister, ho wished to . say that no money had bean lent to local bodies in his time (as Prime Minister) at a lower rate of interest than the ' State had paid for it. He believed, as a matter of principle, that every local body should pay the whole of the interest upon any money which it required. He did not approve of the dual system which was now being established. Mr. W. D. S. MACDONALD. (Bay of Plemty) said that local bodies in the outlying districts, with development work to do; needed cheap money now quite as much oa they had ever dono in tho past. Some Suggestions. Mr. H. J. H. OKEY (Taranaki) eaidi that something should have been done for local bodies in outlying districts, even if-it meant finding a portion of the sinking fund. He approved of the idea that wealthy local bodies should' go to London for loans and not mop up 'locai supplies. A difficulty might arise owing 'to the time that it would require to raise a loan id London. This would be met if the Superintendent of Advances, under such circumstances, were empowered to make temporary loans. He agreed with other speakers that the amount of tho guarantee limitation .waa too small.

Power to borrow under the Act should be conferred on hospital bonrds. ■ .Mr. G. WITTY (Biccarton) said that lie looked upon the Hill with mixed feelings, but hoped that it might do some good. Ho did not think it would give tho local bodies the assured tinnnce which the Government, had promised them, lie considered that the local bodies would be v.'orsa off than under the old Act and that many of them would fait to net the money they required. Even if a local body satisfied the Advances Board it illicit be excluded from the market because the Government contemplated raisins ft loau. Ho agreed that back-block local bodies should have' preference. Mr. C. A. WILKINSON (Eg'mont) urged that the clause empowering c. local body to borrow from a lender other than the one specified when authority was obtained should be amended to give a local body power to raise a temporary loan with «. view to borrowing ultimately from the State. He advocated the grouping of loans and attacked the contention of the member for Avon that boroughs should receive the snmo consideration in matters of loan-raising as struggling local bodies in the country. He was opjHised to reckless borrowing and hoped the Government would keep their borrowing within bounds. Mr. G. V. PEiJtCE (Fatea) replied to soma statements made by Opposition speakers. . The amount of local' bodies" borrowing was not by any means being limited to half a million per annum. He deprecated excessive expenditure, upon harbours, contending that the tendency to make nearly every port in the country capable of accommodating big Homo boats deserved the attention of a Local Government Bo.ird or similar institution. Tho, aim should bo to develop. a good coastal service and develop n limited number of big ports. Mr. C. K. WILSON (Taumarunui) emphasised the claim of bcck-blocks local bodies, to every possible assistance. His district contained five counties. . Collectively they were out to borrow .€200.000 if they could get it. This showed that the settlers were out to help themselves and were not unduly dependent oil the Government. Mr. W. A. VEITCH (Wanganui) disagreed with Mr. Pearce's contention in regard to deep-water harbours. He considered that such a harbour should be made wherever there was water to float vessels when the harbour had been made. Wauganui met this requirement, and Patea, did not. ■ ' . Mr. Veitch dissented from the view that all the money, to be obtained by borrowing should bo spent in tho backblocks. Mr. PEARCE said that in his remarks about harbours he bad not mentioned Wanganui.' The only harbour he named was Oamaru. Mr. E. P. Lee (Oamaru): What did you say about,Oamaru? Mr. I'earce: If Von had been here you would have .hea,rd. He added that he had advocate:! tho provision of facilities for a £cod coastal sorvice. What lie had objected to was the formation of unnecessary harbours for oversea vessels. Mr. J. A.'YOUNG (Waikato) contended that tho Government guarantee even when applied to internal borrowing would not do any harm to tho small local bodies. On the contrary, it -would bring more money into the country from Australia and elsewhere. Ho suggested that the Advances Department might make loans to local bodies to bo expended in erecting dwelling: houses. Mr. I). H. GUTHRIE (Oroua) strongly supported the Bill. He said that it followed upon a series of experiments, some of which, notably the State Guaranteed Advances Act, bad broken down. Thero was a wide scope for any proposal of this kind, bsoauso there was a great deal of development work to do. Ho considered that t'lio guarantee had wisely been-limit-od, meantime, to a sum of .£500,000, but that ultimately it .•Tromld.be possiblo to guarantee annually.a much larger, sum. Tha guarantee provision was entirely supplementary !to the Acts already upon the Statute Book.' Mr. A. M. MYERS (Auckland East) en-, dorsed wliat the member for Awarua had said about the difficulty of floating small loans on the London market. He suggested, that'an anomalous position would be created if -tho market carried simultaneously Government stock tearing interest at 3i or i par cent, and guaranteed stock b?aring interest at possibly 5 per cent. I)r. A. K. NEWMAN (Wellington East) agreed with 'lie member, for Auckland East. He'urswl tho Minister to retain in liiis own lianas tho power of determining when a guaranteed loan should be floated. The- flotation, of the loans would bs attended by numerous difficulties, and if some districts got their loans and others did not; thera would be accusations of favouritism. Mr. D. BUDDO (Kaiapci) submitted that under this proposal one loan .would. b3 floated against another. Tho local bodies at present had reasonablo opportuni-ties-of borrowing, and he did not think they should be cnoou raged to go to London. , ' Mr. D. BUICIC (Palmerston' North) said that the Bill would worthily succeed the old Loans to Local Bodies Act, which was' one of the best,' Acts ever placed on the Statute Book. Mr. Buiclc argued that the Dominion already, in effect, guaranteed local body loans, becauso if a local body defaulted, tho Dominion would havo to meet its liabilities. The Bill was one which New Zealand could not well do without. Mr. J. G. COATES (Kaipara) stated that he saw no reason why t'lie amount of tho limitation upon tho guarantee should not bo .£I,OOO,OGfI, instead of £500,000. The Minister In Reply. The Hon. JAS. ALLEN, speaking in reply, said that tho Bill carried on tho policy inaugurated under the Act of last year. No reduction whatever had bfen made in the amount of money to bo lciit to local authorities, Indeed, a restriction had bean removed since power was being taken to raise a portion of a loan, unraised in one year, in a succceding year. Out of tho million that could bo borrowed annually for State advances, .£250,000 was reserved for local bodies in outlying districts, and upon this amount the Government paid portion of tho interest and the sinking fund. Provision was made for a second class of local bodies which were enabled to borrow, amongst other things, for drainage and 6anitary works. Tho Government did not in this case pay any portion of the interest find sinking fund becauso theso bodies were considered strong enough to bear, these charges themselves. 11l t'lio Bill before the House, the Government made provision for larger local bodies. No limit liail been, imposed upon individual local bodies borrowing under the guarantee provision, but there was an aggregate limitation in the annual amount of all such loans, of ,£500,000. Mr. l?ussell asked Whether local bodies would bo permitted to borrow under the guarantee, and also in the ordinary way from the Advances Department. The Minister said that this would be a matter for consideration. Tho member for Awarua had said that it would bo impossible for a local authority to go to London for a small amount. There was a "ood deal of truth in this, but while it might not bo possiblo to borrow <£50,000 in London on the Stock Exchange', it was possible, the Stato guarantee being employed, to raise loans of ,£IOO,OOO and more in London at from one-half to ouo per cent, less than the loans would otherwise cost. Provision'was made that local bodies in some eases could unite in raising special loans. Mr. Russell asked whether the local bodies must be contiguous, or whether harbour boards at opposite ends of the country could unite in this way. The Minister said that he assumed that tho local authorities would be contiguous. Ho admitted that there might, at times, be a difficulty in raising the guaranteed loans in London.- but it would be for tho Minister to decide whether a guaranteed loan should be raised or not. Thero wero some cases, as when Post Office funds were available, when thero was no objection to borrowing in New Zealand, but the object of the Bill was to provide for borrowing abroad. Tho matter would come up in Committee, but his opinion was that it would be wisest not to tie the Minister down to borrow money outside New Zealand. There might bo occasions when it would bo judicious to borrow inside the country. He saw no objection to a looal authority taking over a loan in sections. All that the Department wanted was that there should bs a definite 'understanding as to when the money would bo taken over. One member had referred to n loan of 0150,000 recently raised from a local firm nt 3J- per cent., and had alleged that this entailed 'lepleting the local market. This wes incorrect - .' Tho Government had taken over the money on Treasury bills for four months, and the transaction was a good ono from the point of view of all concerned, It wm true, tho Minwtor continued, tlwt thero waa, ana had boeu,

a financial stringency, but }iew Zealand was no worse tlian other places 111 tins respect, lib considered tliat mutters were better in iN'ew Zealand than elsewhere. Money was more plentiful than it was live or six months ago, ana the ralo of interest wati easier. Mr. lsitt asked now it was that a city council could raiso any amount 01 moimy at- ;ij per cent, when private borrowers had to pay heavy rates. j\Lr. Allen sukl that some local bodies and otliers accepted largo sums at call. Ho would not say wheclier he thougnt they were wise to do to or not, but tire (government would not adopt such a policy. Mr. Kusscll: You would soon burst up if you got a lew of tho.-e. Mr. isitt said tliat he knew of cases in which private borrowers had paid 8 per cent., although tlwy were possessed of good security.. Mr. Allen said that the honourable gentleman, in such a caeo, ought to examine very carefully the nature of the security ana the nature of tho individual concerned. Both factors were very important. Tho Minister, in concluding, said that the Advances Department at present was making- loans aggregating jeidp.OOl) a month. Tho second reading was agreed to.