AN ANOMALY

Hokitika Guardian, 28 September 1932, Page 2

AN ANOMALY

IN INTEREST RATES. In its report, the Economic Commition of interest rates generally, part of equitable and economically sound that the recipient of interest should make a contribution towards the reduction in costs and bear a due. proportion of the loss of.national income.” The National Expenditure Adjustment Act gave effect to’ the proposal,, and, among other things, there has been imposed a substantial stamp duty on all interest payments on Government issues and local body debentures. This was regarded, as a step towards the reduction of interest rates gehrally, part of the “contribution towards bridging the gap between costs and selling-prices, n and the holders of the securities have had to pay with as good a grace no possible, It is surprising, therefore, to find that local bodies now making debenture issues are able to offer the inventor 51 and 5i per cent free from the deduction made by the Act of last session. Such a course can have only one result. It will prevent interest rates falling, and tend to create an unwelcome competition on the part oP local bodies for any money available for investment. Just why those who bought, say, Government 51 per cent stock last year should have to be content with a yield of £4 19 s per cent, and those who buy local body debentures to-day can obtain 51 per cent., requires some explanation. It seems to us to negative largely the policy of the Government' in endeavouring to reduce fixed charges, and it will - certainly have an unsettling and diverse effect on the money market. The matter is one that should have the immediate attention of the Government. There is, in the net yield of existing issues, a reasonable basis for determining the rates of interest to be paid on new loans. The effects, if present conditions continue, may prove embarrassing to the Government. Early next year internal loans exceeding ' £3,000,000 mature. At present they carry interest at 5$ per cent less the special tax, and if the holders can purchase trustee securities giving 5J or 51 per cent free from that deduction, the prospects of the State loan being converted will be slight.