FAKED FINANCE.

Hawke's Bay Herald-Tribune, Issue 85, 27 April 1937, Page 4

FAKED FINANCE.

It is an old saying, and sometixaes a true one, {that we have to go from home for home news. It is certainly true of our Labour Government so far as concerns its schemes of finance of which so much was made during the pre-election campaign. It has, of course, all along been understood that to a large extent the oracle was to be worked through a Reserve Bank that has been brought completely under ministerial control. As to the extent to and the terms upon which these Operations were to be carried out the people of this country, thoSe xnost vitally concerned, have been afforded not even a hint from those to whom they are justly entitled to look for reliable information on so essential a point. In his first Budget, the channel through which this information should have been given, the Minister of Finance was entirely reticent on this question. He told us much as to the expenditure in contemplation, but nothing that was worth while as to the sources from which the requisite funds were to be drawn or the conditions upon which they were to be secured. On these points we were all left »n profound ijgjnorance. 4 With regard to the guaranteed prices for exportable dairy products, we have some official information. The law requires that the Reserve Bank should publish a weekly statement showing, among other things, the amount of the credits afforded to the Government. From these we have learned that upon those credits the Government has drawn in its Dairy Industry Account to a maximum extent of close on £7-million, the debit now standing at something like £6-million. For - "other purposes," as to which we are told nothing whatever, it has secured advances running close up to another £2-million. As to the rate of interest being charged on these overdraft aiccounts no official disclosure has been made here. However, with respect to the Dairy Account a visiting journalist connected with a London Labour newspaper would seem to have been let into the secret which has been so carefully kept from the Government 's own people. He made no bones about.letting it out, and in the pages of that paper stated the rate as being "exceptionally low, somewhere about per cent." It is also pretty generally understood that the Government 's housing schemes are to be similarly financed, that is, by dra/wing on another account with the Reserve Bank. The amount in contemplation, according to the Budget, was some £3*million, though now £5-miIlion is spoken of, but no word whatever as to the rate of interest to be charged. For this we are again indebted to "a stranger within the gates.' ' It is in a Sydney paper just to hand that an official of the New South Wales Government, a recent visitor to these shores, states that on this Housing Account, the interest rate is to be placed at lf per cent. Now, in neither of these cases has the rate of interest said to be charged^any relation to the rate which the Government itself is paying for the funds it has borrowed for other purposes. Notably ma.y this be said in respect to railway construction, which is a venture much akin to house-buildjng. The best terms upon which the Government cpuld recently float a public loan were 3 per cent. and 3£ per cent., and these were a long way from securing a full subscription. Three per cent. is the rate, too, allowed upon Post Office Savings Bank deposits, which is just another form of borrowing from the people. Yet, when it comes to financing its ventures into dairy-produce marketing and house-building, the Government proposes — if what these two visitors tell us is correct — to charge them with interest at about half those rates. The first conclusion to be reached is that the Government itself regards the funds thus artificially created through the Reserve Bank as being worth only half the value placed upon moneys borrowed through the ordinary channels — no doubt a very faiir inferential commentary on its own devices. The next thought that must be stirred is as to how, with all the competitive schemes upon which the Government is launching, good money is going to contend with the paper credits it thus grinds out for its own undertakings upon such hopelessly fictitious terms. It is another old saying, and one proved absolutely true, that "bad money drives out good," and that is what is already happbning and will continue in increased volume in this country. Unless the Government charges its undertakings with something like a fair current rate of interest on State borrowing, then it can only be said that it is embarking on an era of faked finance, and most of us know what that means in the end.