WELLINGTON TOPICS

Hokitika Guardian, 23 March 1932, Page 3

WELLINGTON TOPICS

INTEREST AND RENTS

(Special Correspondent)

WELLINGTON, -March 21

In the report of the National Expenditure (Economy) Commission with respect to interest rates occurs the following: “The incomes of those af-

fected directly and indirectly by the reductions recommended in the case of salaries and pensions are subject to fixed charges in fthe form of interest and rent, and feel that, while money incomes such as salaries and pensions, art subject to reduction, so also should the incomes of the creditors of the wageearners and pensioners be submitted to similar reductions. If this object cannot be achieved there must, of necessity, be much dissatisfaction with a police penalising one or two special classes of the community.”

On the £tce of it this contention is unanswerable, but the contention is plausoble and there lurks behind it dangers of a serious nature which will retard the progress of the Dominion for many years. The term “gilt-edged” applied to Government stocks and. bond would no longer be applicable for, as Mr Macintosh, one of the members of the Commission has asserted in a separate report attached to. the main report, “that a tax of this description must be regarded as possessing all the elements of confiscation, and is justified only that the plea of satisfaction can in such case be appropriately urged (which it cannot) by .expediency and the exigencies of the situation. A tax of this nature, wrong in principle, would undoubtedly inflict lasting injury on the credit and good name of the Dominion.”

There is no doubt that the credit of the country will be impaired. Those who bought over the Treasury counter did so in good faith, and the belief that the promise of the Government to pay a .specified rate of interest on a specified date would he treated with sanctity and not as a scrap of paper.. Government .securities are not. immune from taxation for the income from such investments is assessed for income tax. The Government will’ be embarking on a very dangerous sea, by tampering with the interest rates on Government securities. The British Government, jn September last, had a position many times more serious, to face than the' New Zealand Government and there was never a hint of arbitrarily reducing the interest rate on British Government securities. The War .Loan scrip, which has figured more than onq.e in the cable messages, total £2,000.000,000 and bears interest at 5 per cent., and no attempt was made at confiscation. It must be remembered that Government loans issued locally are not now all held locally, a great number of the bonds have been sold to Australian investors and the affect on them must be very adverse to the interests of the Dominion.

What is going to-be the effect of compulsorily reducing by legislation the interest on Government securities? The fiduciary cha-raoter of such Securities will have vanished and their status will be no greater than that of an ordinary joint stock company, certainly not as safe as the debentures of, say, the Wellington Gas Company which carry 6.) per cent, interest and are difficult to come by even at a premium. The psychological effect would be just as disastrous. Those with funds available, for investment are beginning to realise that there i s no real safe investment, arid tbe so-called gilt-edged securities are minus the gilt. The result will be that the Government will be unable to < borrow in the local market, nor will the many local authorities. There will be flight of capital from such securities and it will be lodged with the banks on time deposits even at. a low rate of interest, because there will Be more confidence in the banks than in the Government. Already huge sums are lying frozen as fixed deposits in banks and building institutions, who can find profitable employment for those, funds, because borrowers cannot submit reasonably sound securities. It is to be hoped that the Government will survey the position from all angles before introducing legislation. Mortgagees and landlords are in 'a different category to the Government