RAISING LOANS

Hokitika Guardian, 10 August 1929, Page 7

RAISING LOANS

ISSUES AT DISCOUNT. STATEMENT BY AUDITORGENERAL. i WELLINGTON, Aug. 7. In the opinion of the Controller and Auditor-General, Mr G. F. C. Campbell, as expressed in his annual report to Parliament to-day, very considerable additional burdens are from time to time cast upon the New Zealand taxpayer through the practice of raising and converting loans at a discount. “It is obvious that this increased indebtedness,’ 5 Mr Campbell said, “provides no additional cash for development purposes, and it seems questionable whether any benefit is derived from the practice of raising and converting at a discount and endeavouring by this means to keep down the charge for interest. As an instance of the effect of this practice I may refey to the conversions effected by the Treasury during the past year, £16.759,496 4 per cent. Consolidated Stock, 1929, having been converted into £17,484,336 4£ per cent. Consolidated Stock maturing ,in 1947, and in 1948-58. These conversions involve a direct increase in the Public Debt of £724,840 Is, representing discounts allowed on the conversions, and also' involve additional cash expenses amounting to £192,535 17s 6d, the total expenses including discounts being £917,375 18s 6d. The annual interest charge is also increased by £116,415. “To enable a complete estimate of the total amount by which the Public Debt has been added to by tinmen ns would involve an audit of the history of practically every loan, a work which cofyld not be undertaken without very considerable trouble and expense. I have, however, had an investigation made of one particular loan, of which the history has been carefully reviewed. The loan in question is part of the New Zealand loan of 1879. It was originally issued .as a convertible debenture loan at 5 per. cent., with an option to convert into 4 per cent. Consolidated Stock, 1929 The original debenture issue was floated at £97 10s, but actually, netted. about £95 10s. By March, 1881 £4,476,000 of the debentures ' bad been converted into 4 per cent. Con solidated .Stock, 1929.. This loan matures in 1929, and may be considered for the purposes of the following figures to have formed portion of the conversion transactions effected last year; The details fnow that ir respect of the £4,364,100 onsh originally received there is now owing the amount of £5,599,476, representing an excess *of debt over cash received of about 28 per cent. Tf the amount of £4,364,100 and subsequent transactions had in each case been raised at the then current market rate of interest, and, therefore, at par, the present debt would be only £4,364,100. The effect of such transactions, therefore, is that the taxpayer has been relievted of portion .of the annual charge of interest during the currency of the loan, whilst the debt and also the annual burden or future taxpayers has been increased. In effect, part of the annual charge has been postponed, and accumulated until the maturity date of each issue, instead of being met during the period of the loan. “The figures will serve to show that a large portion of the total of ohir present Public Debt represents increases due to the causes now under notice, and such increases have occurred without any relative increase in the assets of the Dominion, and have therefore in effect been added to our deadweight or non-productive debt, even though the original loan may have (been raised for a produe-_ tive purpose. Our present system of accounts is now so arranged that the full annual charge of our London (loans is brought into the accounts during the currency of the loan. ’