INCREASED RATE OF INTEREST

Hokitika Guardian, 24 January 1930, Page 2

INCREASED RATE OF INTEREST

EFFECT DISCUSSED. LOAL BODY LOANS. WELLINGTON, January 21. The effect on Local Bodies’ Loans of the Government’s action in raising the rate of interest on. its stock was further discussed to-day by the Prime Minister (the Rt. Hon. Sir Joseph Ward) in an interview with a. representative of the “Times.” Concerning recent comment ,on the subject published ;in the North, Sii Joseph said he had ascertained from the chairman of the Local Government Loans Board that the dates quoted in the case of the Waitemata ElectricPower Board loan did not refer to the sanction of the Loans Board. The loan, in question, for an amount of £IOO,OOO was sanctioned by the board on September 11, the rate of interest being 51 per pent as applied for by the local authority. The loan proposal was then submitted to a poll of ratepayers on November 27. On receipt of a notification of the result of the poll by the Minister .of Finance, the consenting Order-in-Council under the Local Government Loans Board Act in respect of ,tl,ie. first instalment of £30,000 was issued on December 5, before any decision to raise the rate of interest on Government loans was arrived at, and gazetted on December 12. Sir Joseph Ward said that his previous statement referred only to the embarrassment alleged to be caused to local bodies through the delay which would.arise if further reference was necessary to the Loans Board to increase the rate of interest

“No one ergrets more than I do,” ad ded Sir Jospeli, “the necessity to raise the rate of interest which it is recognised has an important bearing on local body loans, hut the conditions had to be faced if the Government was to proceed with its programme of development of the country. The article published in Auckland refers to the assumed policy of the Loans Board during last year in allowing a margin 6f interest of f per. cent above the Government rate of 5 1-8 per cent Such a procedure was not the policy of the board. Loans were sanctioned at the rates applied for by the local bodies mostly 5-) per cent after determined efforts were made by the board to- prevent loans being raised above this rate. Only in exceptional circumstances were higher • rates approved. The writer of the article has apparently overlooked section 28 of the Local Bodies Loans Act, 1926, which allows interest up to per cent. This provision is one of long standing and was- in existence when current interest rates were lower than they are to-day, The Loans Board ■.is guided by the law on this point, which was only placed on the Statute Book as the result of long experience in local bodies loans.

“The procedure by which the Minister'of Finance is enabled to authorise an .increased rate of interest over and above 5£ per cent or that approved by the rate payers was originally necessitated by the violent fluctuation in the rate of interest during the period immediately following the cessation of hostilities. Somewhat similar .condition's still obtain and the legislation was continued as one of the provisions of the consolidaed statute, the Local Bodies Loans A,ct 1928. Despite the recent legislation by which the Local Government Loans Board was constituted the necessity still exists for the utilising of that pro cedure, where after n poll has been cartried on the terms sanctioned by the Loans Board an increase in the current market rate of interest makes it impossible for the local authority to raise the loan at the rate of interest sanctioned by the board. This implies no contravention of the decisions of the 'board. If it were necessary for the increased rate of interest to he sanctioned by the Loans Board the full procedure under the Loans Board Act, inieluding the taking of a fresh poll, would be necessary.”