SCHEME FOR CAPITALISING DEFERRED PAYMENT THIRDS. IN SPECIAL SETLEMENTS.

Feilding Star, Volume X, Issue 47, 27 September 1888, Page 2

SCHEME FOR CAPITALISING DEFERRED PAYMENT THIRDS. IN SPECIAL SETLEMENTS.

As an example let us take the case -of a ; block of 10,000 acres, which lias been sold v as a Special Settlement, at the minimum, pnoe. 20s an acre, the. total purchasing-i - pnce being- thus £10,000,, payable in twenty half yearly instalments. The deferred thirds, as they are called— that :vt^/:-one-third of the purchase money, yiz.':t ' £3333— are returnable to the local body^ V of the district where the settlement is, qfc 1 the rate of £333 a year for ten years. •■'• ■'.-3'£J' : - Now, if the Special Settlement waftc "; formed into a Boad District, the Ppacii; could borrow, under the Government Loan* -„;; '■'. to Local Bodies Act, £3333. /This sum^ which amounts to about 6/8 an acre, would allow an expenditure on all the roads in an average block of about £2 10s a chain, sufficient to fell, stump, and form, be- . 1 sides putting in the necessary culverts,. .. the metalling and large bridges being left . to be constructed out of general rate, .or _ a special loan for the purpose. : T *'/T-"' A loan of £3333, under the Govern- I '' ment Loans to Local Bodies Act, would r involve at 5 percent, a payment of £16©' yearly, as interest, for 26 years ; so that '-? for the ten years, during which the de- : . ferred thirds were being returned to- Jther ■■. local body, it could, out of the £333 so> ■■-, ' returned annually, pay £166 as interest on Us loan, and , invest each year, £166. J/, This latter sum, annually invested, at :^ *; per cent, compound interest, would atr' ' the end of ten years amount to £1992;/ - which the localbody would have in hand- J to pay the £166 of annual interest for thevi: : remaining 16 years currency of the loan.;: Now, £1924 at 4 per cent, will purchase, an annuity of £166 for Id years; so that under this plan the 1 interest would be. provided for the whole 26 years currency of the loan without calling up any special »,-..... rate whatever, and with a balance of £6$ - to the good. Asunder the Act tne prin- ' '.' cipal is not repaid by the borrowing locals - r body, but is otherwise provided for, thfro?*: advantages of the scheme are obvious. v;.r. The settlers get the whole of their rpad& ,?/ cleared and formed at once, instead pjL-- - being made in driblets dunng the ten years term, while their general rat& ''.'t is available, as before stated, far met- r taliDß and bridges. If tiro or three ; - v years of the ten years terra of a— r seftlement have already expired, there- - may be some instalments of special" rate to V paid towards the termination of the 26 years, but on -the other hand some of the roads will have been made ; V out of the drferred thirds received during '?" "' these first two or, three year«V so. thait the '' ' ; amount of the loan can be pronbrtionateiy reduced. .;:;'.:. Some modified tion of th^aboveschemffT- : «ould have to be made w.hen piiym^tftS^" •'■ ha,ve been capila'.ised -under the > 126th. oi Clause of the Land Act of/LBBs,'Jbut'l d^^--

not think this provision has as yet been largely taken advantage of in Special Settlements. I have based my calculation on 4 per cent, as a minimum rate of interest for the investments, while under the Act 20s is the minimum price for the land. Any increase, therefore, on the 4 per cent, or in the price given for tbe land would produce still better results. It might be arranged thai the Post Office Saying Bank should pay 4 per cent, on the whole J of this special class of investment instead of the interest ceasing, as under present rules when an investment exceeds £500. It must be noted in connection with the foregoing, figures, that the interest under the Government Loans to Local Bodies Act is payable half yearly while, to avoid too intricate a calculation, the above scheme' has been based on a yearly payment of interest. This will of course make a difference to the disadvantage of the investment but on the other hand there is no =good reason why the deferred thirds should not be handed back halfyearly instead of yearly as at present, as the instalments of purchase money from which they are derived, are paid half-yearly. If thirds then were paid half-yearly the effect on the investment of paying the interest half-yearly would be to some extent counter- balanced, leaving the before mentioned surplus of £68 to asMRt in "meeting the remainder. of the deficiency, if any.