THE BOARD CHAIRMAN

Evening Post, Issue 126, 29 May 1936, Page 6

THE BOARD CHAIRMAN

MR. HAMILTON'S SPEECH

IMPARTIAL JUDGMENT

The Hon. A. Hamilton (National, Wallace) agreed with the Minister that the Bill was a very important one. The Minister had said it was the third step on the way to progress; he recollected the Minister of Labour (the Hon. H. T. Armstrong) remarking that his last Bill was the "third leg," so they were getting along very well.

Mr. Hamilton said he was delighted to know that the loss anticipated would not be as great as was thought previously, and ho agreed- that with proper supervision and control the loss would not be as great as was thought previously, and he agreed that with proper supervision and conitrol the loss should not be so great. | The Minister had said that the quidI ing principle of the Bill would be generous but conservative. That was a very fine combination of words. He agreed that conservative thought could be generous. It was the best kind of thought. •■ The Minister had said that the share capital would be cancelled. That might be right technically, but the capital still remained in the Dominion. It was owned by the State, not by private enterprise. "I was pleased to hear the Minister express his confidence in and appreciation of the existing board," said Mr. Hamilton. "I agree with him wholeheartedly that the joint managing directors are capable and trustworthy men, and have administered their responsibilities to the satisfaction of the last Government. They will be useful servants under the new regime, and will carefully administer the policy of the present Government." Mr. Hamilton touched on the Minister's reference to Sir William Hunt, and the contention that because he was associated with other businesses he was not capable of impartial judgment. Mr. Hamilton thought it was possible for big men to"sit on one board and administer that board's affairs as conscientiously as if they had no interest-in any other. Sir William Hunt was a just chairman of the board, and he did not think that he could in any way influence the policy or actions of the managing directors. It would be interesting if they could have some detailed information about the personnel of the new board. He considered that some independent provision was advisable. The Minister had said that price guaranteed to the dairy farmer would encourage other farmers to seek some guarantee. The interpretation of the word "guarantee" in the present Bill was correct, but in the recent marketing Bill it was not correct. Under the Bill before the House the State guaranteed the loss if the loss was not met by a direct security. Referring to the provision relating to second mortgages, Mr. Hamilton said that it would have a restrictive effect, as well as the provision regarding rates and insurance. There was a lot of good in it but there might be some evil consequences. He thought that the Government had controlled interest rates fairly well in the past few-years. The Minister had acknowledged that interest rates were very low. The speaker did not think they would ever be below 4| per cent: DIFFERENT FUNCTIONS. ■ Commenting on the Minister's statement that the Government could do the'work better than the private interests, Mr. Hamilton said that there were some functions that were purely a Government responsibility and there were others that were better dissociated from the Government It was a question whether they were going too far jn placing the lending operations in the charge of the State when it was not really a State function. The Bill, continued Mr. Hamilton made'drastic and far-reaching alterations in both the constitution and management of the Mortgage Corporation. It provided, in a sense, for a coalition between the Mortgage Corporation and the State Advances Department It retained the Corporation as a separate institution, to be managed by a board of directors largely under the direction of the Minister of Finance. It was \ pitZ that the Mortgage Corporation should be cancelled so early in its history. It would have been good for this country to have seen it in operation for a few years. It had worked to the advantage of New Zealand, and had^ played an important part in the mortgage system. _ Mr. Hamilton complained ■" that the Opposition had not had much opportunity of studying,the Bill properly He described it as being along orthodox lines—it did not give expression to social credit or Douglas credit ideas. It followed the lines of accustomed finance, though in some instances it lifted the safety valve a little high and perhaps blew it altogether. The SJT^nnn Cor Poratio» loaned ±.1,500,000, and was considering another £500,000, at 4 1-8 per cent., and if the Minister could do better than had been done for the borrower he would achieve something. When the Mortgage Corporation took over the State Advances there was £36,000,000 involved, and it was estimated that about 20 per cent, would be put into a doubtful account. With careful handling that loss would not be realised. The idea was growing round the Mortgage Corporation that any mortgagor who had a mortgage placed there felt fairly safe. The.Corporation was, in a sense, a financial father to him. A PROPER BALANCE. Mr. Hamilton emphasised the necessity for keeping a proper balance between the lender and the borrower. He was inclined to think that they would find that the borrower and the mortgagor would come in for more consideration than the mortgagee. Those who demanded ' extortionate rates of interest were responsible for disturbances, and careless borrowers were a menace to society. It was wise that a moderate course should bej adopted. Fortunately New Zealand was fairly free from both extremes.

'He asked for an assurance that the Minister had a better monetary policy than the previous one before he asked them to change it. He had not been convinced that there was a better one.

■ Mr. Hamilton said that for many • years the State Advances had been lending large amounts at high rates of interest and it became unwieldy. It became competitive, which was not the purpose of a State institution. The ; Mortgage Corporation was a national institution; it was not a profit-making ; concern. The private shareholders re- . ceived dividends, but they were limited to is per cent. The idea was to give service to the mortgagor and not make profits. In that sense it was to- ; tally different from the private lending institutions. There was a danger where a State institution had large lending power that politics came into it, and there was pressure that was not attached to private institutions. NOT FAR ASTRAY. . Mr. Hamilton said he was not going to say that the Opposition was opposed to the Bill. The Bill, from. their point of view, was not very far astray, but he believed that the present system was better than the system that the Minister was reverting to. He believed that a half-way between the Mortgage Corporation and the State Advances was better than going all the way back. Public opinion seemed to favour State control and democracy seemed to favour borrowing rather than paying back. Democracy did not seem so much concerned about making losses as with the amount spent on management. That seemed a strange psychology, and it was a very unsound one and a very unwise one. It would bo far better for the public to pay attention to sound management and pay good salaries, but democracy did not mind losing money even if the loss ran into'millions, but did mind if salaries ran only into thousands. Referring to part 4 of the Bill, which deals with housing, Mr. Hamilton said that it made practically no provision for a housing policy. It only transferred to the State Advances Corporation two Housing Acts, one passed in 1919 and the other passed in 1922. Housing today was a problem, especially in the city of Wellington, but in Invercargill, where he lived, it was not a problem as a remarkable amount of house-building had been done there in the past few years. A SOCIAL PROBLEM. Housing was a social problem, he continued, and it was a national duty to provide good housing for the people, but he questioned whether any system was as good as that of building societies. He commended to the attention of the Minister the work of the building societies in Southland. During the past few years the housing problem had been studied by a committee and its report was available to the Minister. He took off his hat to Great Britain for what it had done in meeting the housing needs of the people. After referring to the housing legislation passed in 1919 and in 1922, Mr. Hamilton said that it was no sounder for the State to assist in financing the building of houses than it was to assist in iTTe running of businesses or farms. There was not so much objection to the State lending up to 80 or 90 or 100 per cent..on a home than there -was to lending for industry or on a farm, and he thought there should be a margin for the lender in the latter cases even when the State . was the lender. If the provision for lending up.to a 100 per cent, was confined to houses only that would not be so dangerous and would not tend to create a lack of confidence. Mr. Hamilton mentioned that there were some people who could not own homes owing to the necessity for shifting about and they had to rent houses. RISING COSTS. There was nothing the Minister would be so embarrassed about as rising costs, continued Mr. Hamilton. If he tried to keep costs from rising he had a big task ahead of him. Some extra costs would have to be passed on, and it was estimated that the labour costs, direct and indirect, were something like 80 per cent, in building. The price of houses must go up, he thought, and cheaper rents were desirable. He was often puzzled when lie heard of acceptable houses in Great Britain being let at 2s, 3s, ss, and 7s a week. That could not be done here. Mr. Hamilton said it was also a question whether it was wise for the State to become too large a mortgagee, as complications were liable to set in. Mortgagors became a factor and in bad times used pressure which it was very difficult to, withstand. . The change of name of the Corporalion was commended by Mr. Hamilton. State Advances Corporation was quite a good name, he said, and he thought it was better than Mortgage Corporation. It revives pleasant memories of the good work the State Advances did in the past. The provision for buying out the private share capital was an important change, but it was not vital, although he believed that the private capital had had a steadying effect. Perhaps the Minister did not want a steadying effect; he may want the brakes off, but those brakes of private capital did inspire confidence both with lenders and the public generally. Mr. Hamilton said he thought the Minister had treated the shareholders quite liberally, and he had no complaint to make in that respect. The Government had done a fair thing— even a generous thing. Eeferring' to the board of management, he said he was pleased to see that the • Minister was retaining the joint managing directors. . The experience of those two men was almost unique in New Zealand. The staff were to go back to the Public Service, and the country would have a much larger Public Service as a result of some of the Government's legislation. CAUSE FOR CONFLICT. Clause. 22, -which provides that the principal business of the Corporation shall be the making of loans with a view to giving effect to the policy of the Government as communicated to it from time to time by the Minister of Finance, might cause a conflict be-' tween the board of management and the Minister, said Mr. Hamilton. The Minister and the board might have some differences, but the Minister was supreme and the board would have to abide -by his decisions. Regarding clause 24, which provides that bonds issued by the Corporation are to be State-guaranteed, and any loss is to be paid out of the Consolidated Fund, Mr. Hamilton said that it opened up a debatable point. He would say that it was right that the State should get behind loans for housing, but it was advisable that loans for investment should stand on their own footing. The Minister would find when he went to London that people would ask him how much was guaranteed. That arose in Mr. Massey's time, and it did affect New Zealand's borrowing. Clause 25 removes the present limit on the borrowing powers of the Corporation. He. thought it wise with any institution that there should be set limits to its borrowing powers. In the original Act the limit was set at fifteen times the amount of the capital and reserves. That was now removed and the sky was the limit. That was not making provision for a sound institution, and he thought it unwise.

A big field was opened up in clause 28 which authorised the Corporation to make loans for the development of industries. The Corporation would be able to take shares and become a partner in industry, and he thought that was unwise. It was much preferable for the State to give industries a hand to get started and allow them to de-

velop themselves rather than enter into partnership with them. ADVICE TO KEEP CLEAR. The Minister was advised by Mr. Hamilton to keep clear of the stock and chattels business. Clause 30 made provision for the Corporation making loans on stock and chattels which was a very risky business, and it was not wise for the State to enter into it very largely. Referring to clause 32 which provides that a mortgagor may be required to effect a life insurance policy as additional security, Mr. Hamilton said that that might be advisable, but he could not help thinking that the first claim on life insurance was the widow and family.

Under clause 39 the Minister of Finance was placed in charge of the Corporation's profits, and he could direct where the profits were to go.

Mr. Hamilton said he was not criticising the Bill very severely. In some parts it was a retrograde step from, the Mortgage Corporation, which he would like to have seen tried out for a further term rather than upsetting it so early in' its career. ■ He was sure that the system the Government, was departing from was a sound one doing good service, and he would like it to have carried on. «