STATE NOTE ISSUE

Dominion, Volume 8, Issue 2293, 29 October 1914, Page 6

STATE NOTE ISSUE

NOT NECESSARILY PROFITABLE" FINANCE MINISTER'S VIEWS An interesting and convincing statement of the case against a Stato note issue for New Zealand is set forth in a letter' forwarded by the Minister of Finance Wellington branch of the Seamen's Union, in reply to a resolution forwarded by that body to tho •Prime Minister, Mr. Allen, shows.that tho present arrangement, by which the Stato receives a tax for, the issue .of notes by the several banks trading here is more profitable to the country than a State note issue is at all likely to prove. "I have the honour to refer to tho resolution forwarded by you to tho I Itight Hon; tho Premier on the subject of a State Bank of Issue, viz:— •" 'AVith a view to stimulating industry and giving effect to the aforesaid resolution tho Government is requested to institute a State Bank of lesue, instead of assisting in the exploitation of the people by continuing to proclaim the paper currency of tho private banks to be legal tender.' "I may say that I have given the matter careful consideration, and am able to furnish you with the following particulars for the information of your union. ■ ' , . . "At the present time the banks issue notes for which, privilege they pay to' the Government a 3 per cent. tax. From this tax the Government-doriyeß about £50,000 per annum. In addition to this 3 per cent., tho banks have to pay cost of printing the notes, renewals, and some other charges amounting in all to about H per cent., the total cost to the banks thus being about 4J per cent. If tho Government were to issue notes they would lose the note tax of £50,000 per annum, and would have to bear the cost of printing and other charges amounting to, say, 1J per cent. The Government would issue tho notes to the

banks and receive in exchange gold, but it would be necessity that the Government should hold.at any rate a proportion of the gold" uninvested as security' for tho note issue, as the banks do now. "Assuming this to bo one quarter of the gold paid ovor to tho Government for an equivalent amount of notes is-. sued to the banks, and calculating tho position on a basis.of the present issue of notes by tho banks,. the position, would be as follows: — . "The note issue of New Zealand is at present £1,700,000. 'If the' Government were to issue this amount in notes and sell them to the banks 9 for gold at par ,' value, and if the Government retain, as previously suggested, one quarter of the gold thus received, as a reserve, viz.,. £425,000, it would leave a balance of £1,275,000, which coiild bo utilised.for State purposes, and which, ivould bo equivalent to a. loan not bearing interest ' for that amount. . '.'The interest the. State would save' •■ at 4 per cent, on £1,275,000 would amount to £51,000, or just about equal to the present note duty, which would „ be lost. "But as I have already indicated; the Government 'would have to' boar the annual interest on preliminary expenses, and the annual expenses or management, withdrawal, and destruction of notes, and 1 this, plus the loss of the present note tax, would more than equal the annual interest saved by having the use of the free loan suggested above. "I have ascertained that the cost oi . the institution■■ of the •'Commonwealth'note issue up to the end of June, 1913, for machinery, plant, and paper was £54,305. This amount included the cost of issue, withdrawal, and destruc- : tion of notes. The estimated cost- of manufacture was annually £4900, and the estimated annual cost of -issue, withdrawal, and destruction of notes £9800. You will see, therefore, if you add to this the interest on the' cost 6V buildings and depreciation of machinery that there is a. considerable annual charge which has to be met by tho Government. "As far as I can judge, therefore, the present arrangement is more profitable than the issue 'of notes by the Government itself." . > '