THE BASIC PROBLEM

Evening Post, Volume CXV, Issue 35, 11 February 1933, Page 12

THE BASIC PROBLEM

RURAL LAND VALUES

MORTGAGE REDEMPT/ON

AN ADJUSTMENT PLAN

A plan for the rehabilitation of the primary industries and the adjustment of land values in New Zealand has been prepared by Mr. R. G. Buekleton, 8.A., B.Ec, B.Com. The author submits that "the principal cause of New Zealand's present troubles is inflated land values." He suggests, as a. means of correcting this, a plan embodying the basic principles of the"Bawra" scheme which was applied to the wool-growing industry in Australia after the war. The principal feature of the scheme is the establishment of a Mortgage Eedemption Fund of £20,000,000 to be applied in reducing rural mortgages. Interest and instalments of principal for the liquidation of the fund would be obtained by a 2J per cent, tax on exports and a 2J per cent, primage duty on imports. The plan is submitted as one requiring amplification and explanation, which it is hoped to obtain through public discussion.

The inflation of land values is controllable, but the fall in prices is not (states Mr. Buekleton). The recent unprecedented fall in the latter has made it impossible for many of the primary producers to carry on without heavy losses. If it had not been for the inflation of land values, the primary industries would have had some small reserve upon which to draw, and accord-/ mgly could have met present prices to some extent. Derating of farm lands, subsidies of any kind, or inflation, are only palliatives, and do not attack or adjust the root cause, and only postpone the final day of settlement. Even with tho adjustment of land, values to production values, unemployment and other national problems cannot be solved without the restoration of confidence, and confidence can only be restored by sound government, and an assurance to investors, mortgagees, and money owners, whether large or small, that their interests will not be ruthlessly overridden. Prosperity can only be restored, and the unemployment problem settled, when frozen capital is released to productive enterprise. The position of the primary industries must not be permanently jeopardised, but mortgagees are entitled to be secured. The business men's committee and the deputation which waited upon the Prime Minister in November last approved the principle of assistance to needy farmers on the application of a means test. WEIGHT OP THE LOAD. Taking, the gross capital value of land and improvements in New Zealand (as set down the "Year Book," 1933, page 487) at 668 millions, and assuming that the hypothecation of real property amounts to 50 per cent, of the capital value, we arrive at a figure of total mortgage liability in ithis country of £334,000,000. Again assuming that 50 per cent, of the total mortgage liability is on rural lands, we arrive at the figure of £167,000,000. Assuming further that 50 per cent, of the mortgages on farm lands are good, the figure is again reduced to £83,500,000 of bad and doubtful mortgages. Of this last figure, probably about 15 per cent, are hopeless, and nothing but repossession by the mortgagee can happen. The elimination of this 15 per cent, reduces the total figure of mortgages to be dealt with to 71 million. Mr. Buekleton's plan provides for reductions of 20 to 25 million on mortgages totalling 75 to 100 million. This, he claims, should be comprehensive enough to achieve most positive results. WRITING DOWN MORTGAGES. Provision should be made to write off twenty to twenty-five million pounds from farm mortgages, such amount written off to be charged to a Mortgage Redemption Fund of that amount, and mortgagees to take £1 shares in the fund for the amount of principal written off individual mortgages. Shares would carry a dividend at 3| per cent, per annum cumulative, payable halfyearly, and capital would be repaid by annual repayments. The fund wpuld be administered by a board of three directors, appointed by the shareholders. Funds for dividend and repayment would be provided by a 2} per cent, tax on exports (estimated at £35,000,000), yielding £875,000, and 2} per cent, primage duty on imports (estimated at £22,000,000), yielding £550,000, making a total of £1,425,000. A dividend of 3i per cent, on a £20,000,000 mortgage fund would absorb £700,000, leaving £725,000 a year for repayment.

It is suggested that the taxes should be collected by the Customs Department without charge, and paid to the Mortgage Redemption Fund Board halfyearly. Eepayment by annual drawings would be preferable to a sinking fund, on account of the very much lower administration expenses and the elimination of the risk of any losses on sinking fund investments. Any surpluses would go to a reserve fund for. interest and repayments until it reached £3,000,000 .when surpluses would go in reduction of the taxes on imports and exports. Shares should be listed on the Stock Exchange. The London Exchange should be immediately reduced to 10 per cent., and thereafter adjusted by the banks entirely free from political interference. Derating of farm lands at the expense of the Consolidated Fund should b9 abolished, and the manure subsidy discontinued.

Taxes at 2J (it is claimed) are bo small that the effect on prices would be negligible, .and the readjustments could be made- by the individual without increasing the cost of living. The principle of earmarking taxes for a special purpose is wrong in principle, bnt in the present state of national emergency is justifiable.

With exchange' at 10 per cent., probably 50 per cent, of the farmers would get through on present' values, 35 per cent, would require assistance, and about 15 per cent, are in a hopeless position and nothing could possibly save these people. Mortgagors must re-possess in these cases, and inmost instances the men now on these farms would be employed by the mortgagees as managers. Banks, State Advances Office, Public Trust, stock and station agents, etc., and all private mortgagees, should have the right to take shares in the fund. Assistance to a mortgagor should in no case exceed 50 per cent, of the principal outstanding aa at, say 31st March, 1933. SAFEGUARDS FOR FUTURE. Arrears of interest or principal, and arrears of rates and rents as at 31st March, 1933, would be the loss of the creditor, to be written off by him, but this adjustment would be taken into account when application for relief was made by the mortgagor. In the event of a recovery of prices, the mortgagee, who has received benefits under "this scheme, may only make new mortgage arrangements, or sell his property, with the consent of, and subject to the conditions of, the Mortgage Redemption Fund Board. An assisted mortgagor must not be put in a position to exploit the benefits received arid so get himself back into the position from which he was extricated at the expense of the public, unless he repays to the fund some portion of the amount that has been written off his original debit. Applicants for relief would be required to furnish full information as

to the price and deposit paid for the land, mortgages, Government valuation, estimated present value, labour employed, stock carried, sales of produce and adjustments already made with creditors. Approximately fifteen local boards of three members each would receive applications, Lear evidence from mortgagors, mortgagees, and other persons and submit the applications with recommendations to the National Board for final decision. If the total relief recommended exceeded the suggested amount of £20,000,000 or £25,000,000, proportionate adjustments would be made. BENEFITS OF THE PLAN. The following benefits are claimed for the plan:— 1. It would immediately tend to readjust land values to approximate production values. 2. Mortgagees' losses would be minimised at the expense of the whole community, who indirectly have already had the benefits of the mortgagees' investments. Urban interests have probably had considerably greater advantage from mortgagees' investments in rural securities in the past, which investments have provided, in most cases profits, wages, and salaries; and, therefore, for the meantime, at any rate, nrban mortgages could well be left for later consideration. 3. Belief would be given to the Budget to the extent of approximately four million sterling, and this would obviate the necessity for any increase in taxation. 4. Cost of the scheme is definitely known, with a probability of a reduction in the rate of the charge.5. It would not increase local prices or reduce real wages. 6. Farmers benefiting from the plan would tend to become self-reliant and self-supporting. 7. The plan would tend to the reduction of interest. 8. On account of mortgage redemption fund shares being negotiable and acceptable as bank security, mortgagees would probably raise considerable sums from the banks on the security of these shares, and some millions would immediately go into active circulation. 9. The initial cost of the scheme would probably not exceed fifteen to twenty thousand pounds, and the actual cost of administration by a system of annual repayments, as suggested, would be exceedingly small. 10. The settlement of this problem would go a long way to restore confidence, and there would be a general allround improvement in business turnovers, with, a consequent reduction, and cumulative reduction, in,unemployment.