TALKS WITH MINISTER

Evening Post, Volume CXIX, Issue 31, 6 February 1935, Page 4

TALKS WITH MINISTER

"LACK oFr< KNOWLEDGE"

yiTAL 'QUESTIONS

A criticism'• that the Minister of Finance .(the! Pta Hon. J% G. Coates) and his advisers had\sho\vn, very little knowledge of the atrue state of rural finance was made by speakers at the meeting of -the! coiincil of the Canterbury Chamber of Commerce on Monday evening, when a full report of the discussions between the Minister and his advisers and. ;the National Mortgage, Corporation Committee organised by the'chamber was-released for publication '(states- the "Christchurch Press"). The report was given in the form of the direct questions asked by the committee, and the answers, given by Mr, Coates or his advisers. It'was said that to one question. Mr. Coates gaye,an answer, ; and one; of his; advisers gave an ,ahsw*er directly opposed 'to that of the Minister. The report was said to be virtually a verbatim record of the proceedings, several of the members of the committee having made notes, and the questions and answers having been recorded by a stenographer. Beside the Minister, there >, were present Drs. W. B.,Sutch and-H. Belshaw, Messrs. A. D. Park, B. C! Ashwin, and P. D. N. Verschaffelt. REPLIES TO QUESTIONS. ■In reply to a series of questions, the following statements were'made:— • "The ' Corporation would be absolutely free from political control. He gave analogies-^-the Eeserve Bank, the Bank of New Zealand, and the Hallways Board. The Minister did not expert to 'exercise,' control,,' but"; he expected to be consulted." ' The representative of the Treasury on the Reserve Bank had not a vote. The Treasury representative would be extra to^ the other seven directors. It had not 'been decided if he should have a vote, and the Minister wo-' i note 'that' the "committee "did not 'wish him to have one. There would be in getting suitable men to accept'office as provisional" directors if 'they I were faced with the risk of losing their seat at the first annual meeting, perhaps "six'to twelve months after-the establishment of the" Corporation. "The first. annual meeting would probably be 15 months after establishment, and the committee's desire'was to see the usual commercial practice followed in this matter. Subsequent rotation 'of retirement of directors had not been settled, but.it would include both Government and shareholders' directors, so as to ensure a continuity of policy. The Minister could see no objectipn to the election of the shared holders' directors at the first annual meeting, and that suggestion would befavourably considered. INDEPENDENT AUDITORS.----"A commercial balance-sheet would be prepared and published, and private independent auditors would be appointed, in the first,case by the Government. The Minister agreed that favourable consideration would* be given to the Government's appointing one 'auditor' "and "the* "shareholders another. , t '.'Both managing' directors were .intended to, tie appointed'by the ,State at the outset. Mr. Coates explained that the Corporation must have-good and capable'managers-from the outset, and''the only authority which could make the appointments would be the .Government; moreover, its large interests would justify this. "The managing directors would be appointed, for a period of years, and their appointments would, be reviewed only "at the end of \the period; except in the event of incapacity ,or misconduct. At the -Minister's request Mr. Verschaffelt.made' it clear, that the rights of civil, servants taken over by the Corporation would have to be preserved. It was contemplated that the Government ' would hand over the whole of the State Advances Department to the Corporation, which would thus .takei over ithe .whole 'Staff,' but the Government would subsequently take back those; men the Corporation did not want. Promotion and dealings With the staff, the control of the staff generally, would be in the hands of the directors of the Corporation. It was assumed that the Corporation would have its own superannuation funds,,but it,.would take over no liar bility for superannuation rights of men taken over -from the Government. DIRECTORS TO DICTATE POLICY. "The Minister''stated that the directorate would be entirely free to lay down general policy. Regarding new Government activities competing with the Corporation, the Minister pointed out that it was impossible to give any undertaking affecting ; the policy of future Governments, but a ,wise progressive ; policy, on sound, lines adopted by the Corporation would prove the best insurance against any additional Government- activity. The sale of Coir--poration bonds' held by the Government would be a matter of mutual arrangement between the Government and the Corporation. The Corporation would have no privileges whatever not enjoyed by the ordinary lender. " "Blocks 'of" mortgages represent a better security than single mortgages, and that therefore a limit of 70 per cent, could not be considered excessive. The Minister pointed out that the per cent, was a maximum, that it was mot intended that every loan should be made up to this amount (the amount to be lent in each case to be a matter for the directorate) and also that the State Advances limit was 75 per cent. Table mortgages represented a form of. security which lent itself to higher loan limits. The chairman agreed that there was something In this contention. Finally, the' Minister stated that he had'promised to give consideration to a reduction in the • maximum ■ lending limit before the Bill .was drafted. As the Government was guaranteeing securities 'handed over' by the State to the Corporation, the reserves handed over by the Government would be available as, a backing for other business and additional reserves would be'built upas the lending operations of-the Corporation progressed. The Minister undertook to consider the proportion of bond issue to capital and reserves very. carefully in drafting the legislation, so that the soundness of the Corporation would be ensured. The Minister" said he considered that it would be sound to provide legislative authority for private lending institutions of; standing to undertake business on the lines of the Corporation; issuing bonds to. lenders and lending' on 'table mortgages to borrowers. Such powers, however, would have to be" safeguarded " very carefully and it appeared unwise to add the provisions to the present Act. The disadvantage of general legislation on the subject was that it would give opportunities for the promotion of corporations controlled by- undesirable persons. There wquld be no objection On the part of the Government, but the matter of safeguarding would be most important. The Government would be agreeable to any sound pro-

posal. There would be no Government guarantee of share capital. GOVERNMENT'S INTEREST. Mr. Coates said that the Government would take power to ' take up some of the share capital, but no Government inducement had been , suggested for the encouragement of public subscription;' .When > asked: "We.' assume that'the Government has no "intention of- making the share capital of the Corporation, a trustee security?" Mr,. Coates said that the Government had not proposed this,' but it had been suggested. The committee intimated that it djd not wish shares made trustee security, and the Minister undertook that the committee's view would, be taken into* account. He said the present proposals as drafted did not make shares trustee security. Mr. Park'Said that the Government preferred to have "a safe proportion" of bonds at the outset, as the Government must secure as much as possible from the Corporation' in the interests of the taxpayer; the Consolidated Fund had to bear the interest on that portion of the Public Debt represented by the mortgages handed over. It was also stated that'on the other.hand the Government.-would have .to ensure that the Corporation had a satisfactory margin of funds and reserves to commence ... business . and to function properly, in-every respect. ' RURAL CREDITS. It wasyinade clear that1 it wasJ not the.intention that the chattels security business should be a major activity of the Corporation, but it was u> tended, to retain the power to do chattels (-security business so that the Corporation could) protect its own interest in certain, case's. The Minister expressed his opinion that it would be a mistake to wipe out the Rural Intermediate Credits Department, which could- .probably, handle this business. The 'Chairman-inquired why it was necessary to transfer 20 per ■ cent, of the secured assets1 from .the mortgagees 'to the farmer .in "order to accomplish these things. The experience of the South Island over four years of depression had proved that arrangements could be made to carry on distressed farmers without gifts of capital assets to them. They had received concessions of interest, etc., and generally speaking 'were content and grateful to be carried on meantime, and some were recovering under these voluntary arrangements. Mr. Verschaffelt "replied that the plight of the North Island dairy farmers— 4Q per cent, of. whom had. .not been able to pay their rent and interestwas so desperate and their attitude so ominous from the Government's' point of view, that some legislative arrangement was necessary in the form of a general composition with their creditors. MORTGAGORS' EQUITY. Mr. Coates 'said it was not intended to give the mortgagors the 20 per cent, of their assets .during the first five years, but a proportion up to 20 per cent, might be given to them during the second five years, if the Court thought it necessary. The chairman finally'stated that the committee was not unsympathetic to the idea of rehabilitation of some farmers—many ,pf, its members had been practically and successfully doing this work for.-'three years or more— but plans for ' accomplishing it must vary with individual cases, and could only be formiilated byjpractical men who knew the problem in their daily experience. He asked:the Minister if he would allow some of his staff to visit the South Island' and inquire as to .the conditions and what was being done to meet these conditions, so that they -would understand the problems upon which > they were being required to draft legislation. Mr. Coates said he welcomed this proposal, and asked Mr. Verschaffelt to arrange for it to be done. In moving that the report be released, Mr. Machin said that from the full report it would be 'seen that the Minister had discussed everything very frankly, and had agreed that questions be put to him in categorical form. On behalf of the committee, Mr. Machin could say that on the mam questions about the Mortgage Corporation Mr. Coates had answered at once. On the, question of whether the Corporation would ,be allowed special provisions, in. taxation, Mr. Coates. replied "No."' Asked whether the Corporation, would be allowed a monopoly, Mr. Coates. again answered "No." Asked< whether any private .Corporation or company would be allowed to function in the same way as the Corporation .would function, Mr. Coates said "Yes," but added the proviso that the private company would have to be one of standing. p [ MUCH GROUND/COVERED. The answers to*!these questions covered a large^am6unt of ground and satisfied the commiiitee that the Corporation would 'be' expected to function on its own feet, and that its future depended on wliether • the" private investor found 'its rates attractive enough to encourage him to invest with it, and whether the Joorrower found its terms favourable enough to induce him to seek its help. The committee also pointed to what it considered were weaknesses in structure, and the Minister promised in some cases to modify them, and in others to give-fhem full consideration, but whether; the Minister did so or not was of more importance to the Corporation than to the chamber. No doubt the Minister and his advisers would see that the chamber's criticisms were designed to help. ' . = , . On the question of the rehabilitation proposals, the committee had no hesitation in suggesting-that the Minister had,not had time to digest the proposals, put out in his name, that those who had advised him had a very in-sufficient-knowledge of the subjects, and that j the, subject would .have to be given', much .more research before it would be of assistance to the farmer and of. yalue' to the financial structure of New Zealand. NO ANSWERS. The Minister receded frbm several of the important proposals when the committee's questions were put to him. Two or three of the questions could not be answered;by the Minister's advisers because the subject had not been sufficiently considered. To,the question of whether it was right and just that an undertaking to help the whole of New Zealand should be borne only by the creditors of people needing assistance, he could not answer yes or no, because the Minister and his advisers realised that it was improper to place a public burden on private shoulders. It was realised that if this was done,, it would strike at the very heart of. the. proposals. "An answer will have to be given," said Mr. Machin,1 "and there is no other answer than that if it is,done in the public benefit, the burden will have to be borne by, the public purse." The report was adopted.