Where the Money Comes From

Hawke's Bay Herald-Tribune, Volume 81, Issue 7, 1 October 1937, Page 6

Where the Money Comes From

i Our Own CorrespondeDt.)

revealed at last Government's Use of Post Oflice Savings state and the banks

(Fron

WELLINGTON, This Day. After tho presentation of Mr Nash's second Budget there should at least be one thiug ciear, and that is where the Government has been getting its money . The answer to this rid^le has kept anxious financiers guessing here for months past. The figures of the Reserve Bank have been scanned for signs of inflation. The advances to the Government have been examined to-see if they could throw any light on the situation. There have been dark hints of disguised advances, of raiding of hidden reserves. The answer has been so simple that the wonder is it was not evident all the time. " ' The mysterious millions, of counse, have come from the Post Ofiice. This is clearly revealed by the statement in the Budget > which gives the increase in the total of public debt domiciled in New Zealand at £7)784,000., "of- which £5,613,979 repreeented departmental investments and the balanco issues to the publie in connection with the purchase of the Southland Power Board undertaking ' ' ' (this involved approximately £1,500,000) "and the cancellation of ghares in the Reserve Bank and Mortgage Corporation. ' ' To this ia added the rcvealing sentence that "No public issue was made to meet Public. Works expenditure, which was financed from internal resources. ' ' t It is fquite obv jous that only one Government department has five millions to -lend, or anything approaching that figure. For the most part the fuuds of State departments are rigi.dly cqntrolled. The Public Trust Ofiice, of course, has a constant growfch of assets under its control. Though the bulk of these is in the. form of existing invostments, there are xealisations from time to time. and undietributed money is always- added to the Common Fund of the ofiice unless the will precludes this course. However, the ofiice has never been able to turn over £5j000,000 in a single year to any Administration. The Public Works Department has iittle in reserve apart from its hydroelectric department, which has around £1,000,000 invested, and which money was collected under tbe provisions of legislation demanding the creation of such a fiind. This money is safely invested where% no Minister of Finance can get at it. The State insurance undertakings, it appears, ha^e been pursuing a course inctependently of the Government, and the 'Government. LifoInsurance Department is finishing its current financial year with all its money out and working on an overdraft. Savings Bank Investments. Inevitably, these facts throw one baek on the Post Ofiice and its useful Savings Bank. Here there have been spectacular advances. There is the authority of the Postmaster-General for stating that latterly the SaA'ings Bank deposits have been rising by -half-a-million a month ,(at Dunedin on August 2 he revealed that tho excess of deposits over withdrawals for the June quarter was £464,185). In May the acting-Prime Minister said that the deposits in the Post Ofiice Savings Bank were £5,149,000 higher last March than they had been in March 1936, and within recent days Mr Savage, when answering Opposition criticism, cited an increase in workers' savings, in all Savings Banks apparently, of £10,000,000 since the 10 per ceht. cut was restofed. Government bonds liave always been a chief source of investment for the Post Ofiice Savings Bank funds, and the major part of their immense assets of £50,000,000 has long been placed at the disp.osal of the State. It is a convenient way of obtaining money at low interest rates, In the past year the practice has simply been continued and the GovCrnment has been able to obtain the money- more cheaply than ever before. Though the Government has found its way out here for the large sums it needs to put through its ambitious plaqe of Public Works and Public Buildings, jt is undoubtedly troubled about the general situation of public iina ce. The aspeet which is causing Alr. Nash concern is the refusaf of the banks to advance large sums to locai bodies at the low rates of interest which the Government nas set fox* these loans. Within the last few days the Otago Harbour Board was rebuffed when it sought £40,000, the fifth issue of a £350,000 loan, for 30 years at 3j per cent. The Labourcontrolled Wellington Hospital Jloard, with its ambitious scheme for a £600,000 new hospital which may cost £1,000,000 by the time it is equipped, had to pbtain a £550,00 loan froin the Government Life Insurance Department which for some reason has Deen. shrouded in secrecy. This is the real issue behind the vague statements of the Prime Minister that "complaints have been reachmg bim from all over the country" that the banks are not providing tbe service which the country has the right to expect, and that if they do not provide this service, then "the State has the right to step jn'' and furnish it. Banks and Local Bodies. 'Ihe banks are understandably reluctant to advance money at from 3 'tp 3£ por cent. for a term of 30 years, especially at a time wlien the Government is taking credit to itself for the fact that exporfc values are rising and is admitting that living costs are rising, too. What the depositors think.: about this determined moye t0 keep down interest rates on their money nq ' one has even speculated upon. i However, it appears to be a vague] intention of. the Prime Minister, .if not ] of the Minister of Finance, to tako j over the Bank of New Zealand in all its operations unless there is some easing„ of the position over local-body loans,. This course naturally has the support

oi tbe extremi5ts in- the party wh® would Jike to see all financial institutions nationaiised. At present there is defiriitely no decision on the matter, though the • Government is feeling the irritating realisation that it is not yet all-powerful in the financial field and not completely equipped to deal with " a lenders' strike. The recent overtures of the . locaj bodies who asked that, since they wero unable to obtain loans elsewhere, the Government should create* a speciai pool from which advances should be. made has led to nothing. The Government has not yet discovered where it could obtain the money to do such a thing. In any case, it is not considered to be a function of the central Government to silpply local. bodies with funds, especially when it needs . what money it can obtain for its own large plans. Nor does the Government- symr pathdse with the attitude of investora (with whom the banks may be classed) that it is desirable to exercise all possible care just now when placing mqney, so as to ensure the safety of principal. Under Labour, it appears, all investments are to be regarded aa safe.