CHEAP MONEY

Evening Post, Volume CXL, Issue 22, 26 July 1945, Page 8

CHEAP MONEY

LOCAL BODY SCHEME

MR. LEFEAUX'S OPINIONS

Px'oposals for interest-free money ! to be extended to county councils to provide for creation and maintenance of public amenities were made to the Counties' Association conference yesterday afternoon by Mr. H. T. Gibson, chairman of the Waitemata County Council, on behalf of his council. Mr. Leslie Lefeaux, former" Governor of the Reserve Bank of New Zealand, expressed his opinions on the scheme In the Waitemata remit it was suggested that the Minister of Finance be asked to implement promises expressed and implied in the Government's policy in 1935 and since, toy issuing all new credit money required for national purposes through the Reserve Bank, interest-free at its source; to make such money available in loans to local bodies at a nominal interest rate to cover administrative charges for carrying out approved public amenities; to avoid inflation the issue of such money ; would be correlated with the mainitenance of a stable internal price level 'and the assurance of full-time employment. ;\ It was contended that the recommendation was much in line with the recent British Local Authorities Bill making money available from the Trsasury to local bodies at approximately the same rate of interest as the Treasury paid. A Mangonui remit recommended that the association study the subject of interest-free money as a means of providing finance for work of national importance. Mr. Gibson said that local body in-terest-bearmg indebtedness had reached a stage where it must hamper all future progress and development. With overdue maintenance to be overcome, at greatly-increased costs, most county councils were faced with large, probably unprecedented, expenditure. Their competition on the investment market would make loan money scarce and possibly dear. The greater the development, the greater the indebtedness involved. The fundamental principle should be that, after providing, say, 1 per cent .for administrative costs, money over and above that now required to pay interest and amortisation should go into increased sinking fund payments. COST TO RATEPAYERS. A £20,000 loan today at 3£: per cent., plus £5 4s per cent, sinking fund, redeemed the principal in 15 years and cost £10,500 in interest alone. Under the system proposed the same loan at 1 per cent., plus 7 per cent, sinking fund, would redeem the loan in 11-i years and cost the ratepayers only £2300 ' Mr. Lefeaux, present by invitation, said his opinion was solely his own. What Waitemata proposed was undoubtedly possible; it was also possible to.walk on one's hands, but that was not necessarily a method of progress to be recommended. The safeguards which existed when the Reserve Bank was founded no longer existed, and there was no limit to the inflationary processes that could be indulged in. The consequences of such a system were inescapable. There would be an extension of the trouble brought about by too free advances to the Government. The rate of interest was not really material. Money for capital works by local bodies should be borrowed from the people as a whole. If they started to spend without doing this, they would increase the number of "pieces of paper" in the hands of the people without increasing the volume of consumer goods. Borrowing from the people for capital purposes meant that what went out would be balanced by what came in from loans. . After describing the difficutlies of issuing such" interest-free loans equitably among all local bodies, Mr. Lefeaux said that they might get full employment and people receive what appeared to be adequate incomes, but in time they would he vef&vmg\ only paper.. ■,-.-' WAITEMATA REMIT LOST. Resuming the discussion today, Mr. H. T. Bates (Bay of Islands) said the remit was the most important before the conference. Mi\ Lefeaux's reference to paper money had been unfair and misleading, lor when the war was over the amount oi paper money would be considerably reduced. He supported the remits. As a delegate from Cook County, which he said had paid £111,000 in interest over the last 11 years, Mr. E. H. Baker said he was impressed by the sanity and clarity of Mr. Lefeaux's views. It was not the interest payments that caused the trouble. It was the unfairness of hospital rating and the paucity of grants from petrol tax revenue. If the counties could % get relief in such directions, they could get along without endangering the structure of national finance.

Instead of handing down to their children a debt-free cpunty heritage, they were more likely to hand on a position of utter financial chaos if the idea of interest-free loans were, put into practice, said • Mr. H. Kitson t^Waimairi). ... ■

In reply, Mr. Gibson (Waitemata) said if the remits were carried it would establish a nucleus of reform for posterity. He asked the delegates to cast aside old-established and hide-bound ideals and study the problems of finance. If the motion were carried, their children and their children's children would look back and say, "God bless that conference of 1945."' He considered he had at least achieved the objective, of getting delegates to think on the problem.

Mr. F. Holder (Wanganui) said it was all very well to say that "this thing can't be." The conference should not turn it down flatly. They had to give their best to the amenities of the counties and the delegates should consider the remits well before voting. The Waitemata remit was lost on the voices. Mangonui's remit was carried, urging that the association take the question of interest-free money as a study.