RURAL ADVANCES

Evening Post, Volume CXII, Issue 59, 7 September 1926, Page 4

RURAL ADVANCES

ASSISTANCE FOR FARMERS

STATE ADVANCES FUNCTIONS

EXTENDED

BILL PASSED BY HOUSE,

( The Rural Advances Bill, extend- / ing authority to the State Advances i Office to grant loans secured on mortgages of rural lands, was under dissuasion in the House of Bepre(sentatives yesterday. The measure met with fairly general api proval, and was put through' all / the final stages and passed. f. In moving the second reading of the Bill, the Minister of Finance (the Hon. W. Downie Stewart) said the measure :.was the outcome of the Bural Credits Commission'! report, the central ides of which the Government was endeavouring to give effect to. It proposed to extend the functions of the State Advances Department as had been suggested by the Commission. If •uch a system as that recommended' was successfully established, it would be of great benefit. The .proposed system ipf bond issues, if successful, would enable securities to be disposed of at any ,'itime during the year, and would faci'litate the securing of capital, apart jfrora the general borrowing require'ments of the Dominion. It was important to notice that the securities is•ued must not exceed the capital value of the mortgages held. Eeferring to the Public Debt, Mr. Stewart said that '£27,000,000 of the total was coniprisJcd of State Advances moneys. Tho bonds it was proposed to issuo undor the proposed system wero not to be charged against the public revenue, and • would not be an addition to the Public Debt, nor would they affect our borrowing abroad for public works and other purposes. The advances to borrowers would be on a more conservative basis than the present State advances to settlers. The limit set by the Bill in respect to advances was two-thirds of the valuation of the farm, up-to a maximum of £5500. The fa-t that there was a larger margin of security than under the advances to settlers scheme should make tho bonds more marketable. The Commission had pointed out that the proposed system had been found in most countries to be very much.availed of, and that it encouraged thrift and saving. The Government had inserted a provision in the Bill which was not included, in the Commission's report that there should be an. additional member on the board to, represent the primary producers on the board. The question of the rate of interest was to be left to the Minister to fix,! as it was difficult to see what might require to bo done a few years ahead, and if the rate was definitely prescribed in .the Bill it would probably require ,to be altered later on. Tho clause requiring bonds to be signed and'sealed "by. the Superintendent of the State [Advances Office, and countersigned by (the, Secretary of the Treasury, should .provide an additional safeguard to the security. A new clause would be introduced in committee so that payments by the Department of moneys to redeem the bonds could be recovered from the 'amounts made by the new branch. This point was not made quite clear in ffie Bill. The Leader of the Opposition (Mr. H.'.'B. Holland): "For what term will the bonds be issued?" Mr. Stewart: "The term will vary according to what is found to be best from the market point of view. It is left' open in the Bill." Mr. D. G. Sullivan (Avon): "I suppose the ordinary branch of the State Advances Office will cense to operate in regard to rural areas?" The Minister replied in the negative, and pointed out that a wider margin of security was provided under the now scheme.

WHAT IP A SLUMP OCCURS?

Th£ Leader: of the' Opposition (Mr. H. E. Holland), said that the provisions made in the Bill appeared to open the way for rural banks at last, but he did not think that tho limit of 66 2-3 per cent, would succeed as well aa one of 75 per cent., or even more, a3 tho smaller limit would not help tho small man" who really needed tho money, and was uuable to gain it in the ordinary channels. It would be just as well if the Minister made it clear, as was undoubtedly tljp case, that in the event et a depreciation of security or a slump, ; the State would be brought into the matter in the end. The only difference in this case was that while the State mines and other things were baclced openly, in the event of a depreciation in the security of the bonds the .whole thing would come back on the public debt nevertheless. Sir Harold Beauchamp, in an addresß purported to be delivered in America, ,wa« reported as saying that a large number of farmers in Now Zealand, owing to land inflations, were claiming far more assistance from the Government —which had to a largo extent been afforded by the Government Advances ■bo Settlers, which had lent to farmers 'during the year ended March, 1926, no ■less than £6,000,000. The report continued to refer to the delegation having been sent abroad "at the farmers' instigation." The Minister of Finance (the Hon Downie Stewart): "Sir Harold forgot that a lot of the'money was lent to •settlers,' and not to farmers." Mr. Holland: "One would have expected the manager of one of the largest banks to have mado himself clearer." Sir Joseph Ward: "He was not a member of the Government service." Mr. Holland: "No, but as chairman ef the Bank of New Zealand he has gome official position in regard to the Govornment. What tho farmers really sought was some information as to rural banks, and their probable success1 in -New Zealand. Quite a number of them «till want rural banks here. "Mr. urged the Government to reconsider the proposal, and make it 75 -per cent.

THE GUARANTEE OF THE GOVERNMENT.

f! Mr. Forbes (Hurunui) thought a 'good deal of money could bo raised in this country by short-dated loans. The Tjonds might be issued in different lengths of torms. A Government loan at 5} per cent, recently did not meet .with the response expected. That had Ibeen for a ten-years' term. Perhaps it would have been better received had .it been a five years' term. From threo ilo five years was the usual timo for .loaning money out ou mortgage, and if a proportion of Government loans -,was issued for flvo years they would have a better chance of being taken Inp. He hoped there would be no off in the giving of advances. It was generally understood vthat tho Government was behind the Jbond»> and in the end they might just as well give tho financo their name, as they had in the case of the Bank of New Zealand. Ho thought the Minister of Finance should be empowered to place the guarantee of the Government behind the bonds, if necessary.

ANXIOUS FOB A TRIAL.

Sir Joseph Ward said that the margin of advances should bo a reasonable one, and for that reason the maximum amount had been limited to £5500. At preflflpj the position waa qnitg eariojoa

enough from any point of view. When it was recognised that this country owed £258,000,000 it could be seen that any unnecessary borrowing would lay it open to be called the most profligate and spendthrift country in the world. What did the whole position of these bonds, summed up, mean? The Government was striving to keep the amount of the money off the public loans. Was anyone foolish enough to believe that the country was not responsible for these loans? The bonds would be signed by the Superintendent of the State Advances Department and by the Treasurer. Could the country repudiate ; these signatures? Seventy-five per cent, would be a high margin when it was considered that they were subject' to a system of amortisation, and he considered 66 2-3 per cent, was quite enough margin. Everyone was anxious to see the proposal given a trial on that basis. Shortdated loans were a most dangerous thing to-day. The was spending some £120,000,000 to £140,000,000 a year, and he did not see how anyone could imagine this; was going on. It would not be at all to the advantage of farmers to have! to arrange finance every five years, with all the expenses attendant on the short loans. New Zealand was well fitted to carry a bigger population than the United Kingdom, but while it was growing up it could not afford to have money out for fiveyear periods. He had no doubt that in a short time the Old Country would form some new form of investment for New Zealand. He considered the sefiurity of these bonds quite as" good as that of the State Advances. Fixing security of farm lands was a more difficult task than in the past. Mr. A. Hamilton (Wallace) commended the Bill, which he said waß a very material advance upon the present system of borrowing. To some extent it would provent the drift to tho towns; for it had been difficult of late to secure the necessary capital for farming purposes. Both capital and labour were being.attracted away from the rural areas to the cities, and they had to consider how to counteract that tendency. This might be done_ by increasing the wages and improving the conditions of the farm worker, and increasing the farmer's financial returns. The first need of the farmer to enable him to develop his land was credit. The Bill would direct tho flow of money in the direction of the land. It was the Government's duty to see that money was to be got on the lowest possible terms. If all mortgages had been on the .amortisation principle in the past there would not have been so much trouble during >the slump. It was a question as to whether the Bill should not' go further and establish a system by which more money would be made available, along the lines of the present Savings Bank Act; ■ ■' TM true feature of the'Bill, declared air.-' H.: G. N- Mason (Eden),: was that it did not provide the assistance the f armors wanted. It was well worthy of a Government which had raised the rate of interest on State advances and which always-conserved' the interests of the monoy-londing clashes. The Bill made no provision for cheapening money in any way. There was not the slightest difficulty, about keeping down ratijs of interest. Why could not tho Stato Advances Office receive money on fixed or current deposit, as every building society did! The building societies had lent money on longterm table mortgages for many years, and the Stato Advances Office could evolve just as cheap and efficient a method of lending. It would bring clown rates of. interest, but, of course, that was inconsistent with tho Government's policy. . The Hon. A. D. M'Leod (Minister of Lands): "It would have exactly tho opposite effect." Mr. Mason' said the Bill would come as a bitter disappointment to the bulk of tho people. -It entirely ignored ' the needs of the average dairy farmer.

THE EFFECT OF COMPETITION.

The Minister of Lands (the Hon. A. D. M'Leod) said he could not understand the extraordinary economies of Mr. Mason. If there was a shortage of money and the banks entered into competition for it the effect must be that the rate of interest would be forced up all round. No bank could afford to sit tight and refuse to increase its rate of interest. Anyone reading the history of.the great Australian financial crisis of the early -'nineties, which also struck Now Zealand very hard, would know that it was caused first by the difficult times* and by the competition of the banks for the money available. Mr. H. B. Holland: "And drought conditions'tob;" ' Mr.1 M'Lcod:' "No, the whole thing started in Victoria, and it was very little the effect of drought." The result would- be the same in New Zealand if competition between the banks was started. Mr. M'Leod said that tho bonds it was proposed to issue under the new scheme would carry the Government guarantee no less than did the whole of -the bonds .associated with tho hydro-electricity schemes in the Dominion. The Minister referred to the wonderful work of th'e State Advances Office, and said there had been a tendency to overlook the work the Department had done for the man on the land, particularly ia the direction of improving farms. The margin, of security would always be open to discussion. One of the great needs in regard to what might be called risky mortgages was close supervision, which was more necessary in chattel mortgages than in any others. He was quite certain that if tho State Advances had to employ the administrative staff to closely watch the chattel securities which tho Lands Department had had to deai with it would have found it impossible to work on the 75 per cent, limit at present imposed? Mortgages on chattel securihad to be written oft' such cases always difficult to handle, and. until settlers ' had thoroughly established themselves and had a margin of at least 50 per cent, in their chattel mortgages there would always be aconsiderablo loss.

£10 AN ACEE TO FAEM.

Mr. J. E. Hamilton (Awarua) said that provision was being made for the amortisation principle, but he thought some provision should have been made for the man who could not get help from the State Advances Department. It was the State's job to keep those peoplo on tho land, instead of spending many thousands to put fresh men on the land. A good deal of monoy had had to bo written off such cases already, and he thought the Government should find money for those who had not the 'requisite margin of security. No man could go on a 200-acre farm to-day without £2000 in cash. Could not some scheme to assist a man with £1500 bo devised by the State? Tho banking system deserved more credit than it received, a3 tho banks had tided men over time after time-

LIMIT ALREADY REACHED.

The State Advances already lent up to the nearest thing to the full security. How could a State bank, with a. safe margin, do any more? If the margin of safety was passed, and a bigger margin of riak was taken than was being taken to-day, how would the Labour Party propose to carry on the State Bank's business and get people to put money into it? Tho drift of tho population iuto the towns was so great, and the position of the country so serious, that the Government should do something to keep peoplo on the land, the productive value of which had decreased 20 per cent, in the last two years.

BILL UNNECESSARY.

Mr. 11. T. Armstrong (Chrißtchurch East) said that if it were true that productive values had decreased 20 per cent, in two years, mortgages in that Kerfe* Mi £§«S «S£oased materiajlj.

Farmers were in their position to-day because of the ridiculous land policy supported by "the Government. How many farmers could avail themselves of the proposed legislation? There was nothing in the Bill to , empower the Government to do more for the farmer than it was doing now. A Commission had toured at considerable expense, and something had to be done, Hence this Bill. There was no way of materially assisting the farmers of this country except by a State Bank, or by the Government controlling all the finances of the country. The forming of a separate branch of the State Advances Department could do no more than was Being done. . Mr. David Jones (Ellesmere) referred to the wonderful increase in the expansion of the Dominion since 1900, the total trade having- increased from £23,000,000 to £101,000,000. Healthy expansion and industry was now clamouring for credit, and it was because of the enormous development that there was a demand for credit rather than any financial difficulty. Electricity, railways, and all State enterprises called for money, and it was tho same in the case of agriculture^ We were always being told that farmers were mortgaged up to the hilt, but the majority were in a sound position. Some were in trouble, it was true, and some in deep water. To-day Government bonds were the most popular form of investment, and this -proposal was an extension of that principle, the possibilities of which it would by' no means exhaust. If Government bonds were more freely advertised, much of the money that went into wild cat schemes would bo saved. On the question of margin of security, it was w^se to watch other countries. He knew no • other country giving as high as 2-3 of the value. Serious times and droughts tested such things mercilessly. With small advances the risk was not-so great, as the resident man and his' family watched the interests of the' property. 'Mr; Jones said that some very hard words had been said about the Commission, but there was one valuable thing that they h'ad done they had proved that nowhere in the world was there a better system than the State advances system. They could not expect the bonds to sell rapidly at first, but the time would come when the bonds would become marketable outside New Zealand. The wealth of New Zealand was also increasing rapidly, and the bonds would sell very satisfactorily. Eeferring to statements by Mr. H. G. E. Mason regarding rates of interest, Mr. Jones said that the Beform Party was just as interested in low rates of interest as were the members of the Labour Party. If the Labour Party's land policy were put into effect, no bank would advance money, for it was a .plank of the policy that land should not be transferred except to the State. Where would the bank's security bje? .

"POLITICAL HUMBUG."

"This piece of political humbug" was the manner in which Mr. J. M'Combs (Lyttelton) summed up the Bill. The farmers, when they studied the proposals, fwould, be disappointed at the miserable result of the work of the Commission. The Bill was on a par with the humbugging legislation brought down in 1922, under the name of the Rural Credits Association Bill. That piece of legislation had proved a dead letter. The farmers for a long time had been asking' for bread and the Government had given them a stone. He ventured to say that the present Bill, if placed on the Statute Book, would prove to be just as much a dead letter as the legislation of 1922. What chance was there of t>e Government selling bonds -at 5J per cent, when the Bank of New Zealand was offering 5j per cent.? He-had a suspicion that the Committee which brought down the report had an idea that the legislation would prove to be a dead-letter, that it was in tho nature of a trial.

MINISTER REPLIES.

"I have listened with interest to the remarks tit the last speaker," said the Minister, >in replying, "and I sincerely hope I&at some day .1 will be able to do something that will satisfy him." (Laughter.) When Mr. M'Combs said that the'Bill was mere side-step-ping he ignored the fact that the report had bee£ drawn up by members of a Commission, which included the president of the Fanners' Union. Mr. Poison had stated on his return to New Zealand that] the scheme in the Bill was sufficient? for the purposes, and he did not press' his original idea, which was for an Agricultural Bank. Eegarding the suggestion that the bank would bo competing? with the Government in the matter of jmterest, the Minister said that it was impossible to say where the bank was going to go for its money or what rate of interest it would pay. He could not understand the criticism of Mr. Mason, vko had said that the Government was out to preserve the interests of the monied classes. The Bill proved that the object of the Government was in the opposite direction altogether.- Mr. Stewart refuted the suggestion that the Government had embarked on the scheme for the purpose of providing a job for a friend of the Government, and stated that there wa3 specific provision that the initial organisation should be in the hands of a board. In Committee on the Bill a new clause was insorted providing that the principal moneys secured by any bond or other security issued under the Act, together with all interest payable in respect thereof, shall be payable out of the Consolidated Fund, and bo recoverable from the Kural Advances Branch Account of the State Advanced Account. The Bill was passed.