[?]T. CONVERSION LOAN

Rotorua Morning Post, 1 March 1933, Page 5

[?]T. CONVERSION LOAN

COMPULSORY CLAUSES OVERDRAFT RATE CUT 3NTY PER CENT REDUCTION b| IN INTEREST RATES na 1 NETT GAIN OF £570,000

■M hope that the measure will release frozen capital Mng the example of Great Britain and Australia, the Rt. I Coates, Minister of Finance, introduced a New Zealand ® Bill in the House to-night. min points are the reduction in iiie Bank overdraft rate of S a 20 per cent. Teduetion in interest rates on Government fijnd debentnres and the lowering of deposit rates to 3 per Msory clauses are provided, if necessary, and the measure M effective on April 1. JSlsis of the conversion proposal L a reduction of 20 per Misting- rates of interest with ia minimuxn of 4 per cent, *Hn free of ineome tax securities) for the halance of the misting securities and an actual return of 4 per cent, only 'Kmtil the maturity date of the new securities. Except in the mstax free securities, the new securities will bear a nominal apr cent from the date of conversion which is toi be April 1.

^(Wellington, last night. Sahnental cause of the d'eZealand is the fall Hces conibined with the fflgher prices including inwages, fees, taxes and BBnts for services to fall M§i We have been hoping Krement in export prices »niirsp. would immediligkr difficulties, but so far |»>m this source has ma|(id looking the world Sraire, unfortunately, few jsfy definite moveinent w®; recoverY, said Mr. fflSntroducing his stateBBMeasures Necessary ifive no option but to proSernal measures for narRap between costs and Mst is probably (directly ®|v ) the major item in the f|| of all business and it is Rsuch an important item ||hitted from any scheme gmt of costs. This is so not l|e point of view of necesBnrom that of equity. We ife the fact that our ecofflbvium has been seriously (pneral sacrifices are reKeffort to rectify the posi|n place the Dominion on Smore prosperous times. m if we can obtain lower ( of interest on a sound Bhat is what the Governin view- — that faetor in | be a far-reacliing and ■ to recovery. ■ Hg Working Expenses Ke a material factor in j ihe working expenses of ! 5 and accordingly will be ' fcentive to increased act- - piness. In many respects It is the life-blood of ing- . 1 1 experience in past de- ! las shown that it is an ■factor in overcoming gignation and in starting Etum towards recovery gate and relief to the jg, if not immediateiy, it Bmeans in turn relief to

iMaSp Money Needed it is felt that if we can i®!! price of money it will Sgner prices for many other Ijpthus assist materially to Smr fundamental problem 3gg the gap between interfafid export prices. In LonPl; most other internatioal jpfcrest rates in the short■Bmarket have fallen to a wlvel. In New Zealand we liiiort-term market in the |||lnse of the term and shol't (§/ing is represented by the Kpraft rates and deposit ffi position in this respect is g||gous to Australia. Bates Stnonwealth, however, are llferably lower than in New |||r these items. gKlraft Rate Must Fall j»|ie point of view of help^eople of the Dominion it ffilsed that a reduction of gSoverdraft rates will be of jps and far-reaching bene®&ctions of the community. m-draft rates of the banks |®;vances rates of other inBrre, of course, defmitely ® deposit rates, for, obvip|rate at which money can Roverned to a large extent 11 at which it can be borrow^ivernment have, for some Rbeen reviewing the whole ||d endeavouring to arrange Hons all round. fiction of 1 Per Cent Eow able to announce that ggciraft rate for best acgill be reduced from 6 per B5 per cent. from May I ^currently with the reducghe -overdraft rate I have Sin assurance from the Iive ittctioneers and agents asR that the rate now heing §»n stock and station agents pawill also be reduced b.y 1 g| with a minimum of 6 per «ision is subject to ratificalo stock and station agents Mellington, but I have every |H that it will stand. ffialf Million Saving jfank advanees standing at p, 000, 000 a reduction of 1 Simeans a direct saving of § year and this relief will || d where it is most urgent- |. Even half-a-million pounds ifraction of the saving that it from the lowering of the I rates for the interest chargI sorts of transactions are llinked with the overfe just as an increase in over|es is reflected in a rise all l a reduction has a snowball jigs Bank Rates Reduced ir as the savings bantg are ;d the rate for the Post Off ice Bank and the trustee savings i at present 3S per ceat. Also far as the post office savik is concerned, this rate apy to amounts up to £590 and

above that amount 3i per cent is allowed, as a matter of equity the savings bank rates should be reduced to the same extent as other deposit rates and it is accordingly proposed to fix the basie savings bank rate at 3 per cent to be operative from April 1 next. First Step It would appear that the first step towards a lower interest basis generally must be a downward conversion of ihe existing securities. This, the Govcrnment now propose to undertake and the purpose of the bill now befure the House is to enable a conversion offer to be made to all holders of Governnient securities domiciled in New Zealand. Huge Amount Involved The amount of defet concerned is approximately £115,320,000 but of this amount about £45,800,000 is held by the post office or treasury ; accounts. These securities alread'y . bear mu'ch lower rates of interest [ than those held by the public in j general. The rate on the post office and treasury holdings is not above ( ihe minimum of 4 per cent. pre- > scribed by the bill but further reductions will be mad'e by administrative action. Most of the holding of the post office belong to the savings bank and tbo reduction that is possible in the j interest on these securities is govern- ; ed by the reduction in the deposit j rate already referred to. Position of Debentures Debt at present bearing interest I at 4 per cent and under is not affecti ed. Four and a-half per cent., free i of income tax debentures are to be | reduced by 20 per cent to an effect1 ive yield of £3 12s per cent. for the balance of the eurrency of the present securities. During this period new securities will, however, bear a i nominal rate of interest of 32s per | cent, the additional yield of 2s per | cent. being secured by the issue of ! additional securities to the holder. For instance, the holder of 4» per ' cent tax free securities maturing on | April 20, 1939 will receive £100 10s ; 7d for new stock for every £100 of his present holdings based on an actuariai calculation. The interest on the extra 10s 7d together with the redemption of the amount at the j end of the period will give the holder j the extra 2s return. Thereafter the new security will bear interest at 4 j per cent subject to income tax. A 4£ j per cent security subject to tax will be convertible into «4 per cent security. The reduction in this case is less than 20 per cent. but 4 per cent has been adopted as a minimum rate. Higher Interest Securities Apart from tax-free securities stock now bearing interest at from 5 1-8 per cent to 6 per cent. will all be convertible into 4 per cent. securities but the effective yield to investors for the balance of the present currency will be higher in each case as a greater amount of the new stock will be received by them. Increase in Debt As a result of these issues of additional stock there will be an increase in the debt of approximately £500,000 but that is unavoidable as it is one of the features of the proposal that no reduction should be made in the capital of any investor's holding while it is desirable that new securities should bear a uniform rate of interest. In any case it is not praccicable to have securities on the market bearing interest at odd rates. Compulsory Clauses An appeal is made to investors to assist the country by converting iheir holdings. The Government will he glad to receive prompt notice of assent but if no notification is receiVed within the prescribed period assent will be presumed and conversion will follow. Holders of course, have the right of d'issent, but if thev do so their interest re-

ceipts will be subject to the existing stamp duty and any other special taxation on interest that may be imposed. No Stamp Duty on Conversion Holders who convert will be free of the present stamp duty and the interest from the new securities will not he subjeeted to any other special taxation. Including the savings to be made by reducing the rates of interest on securities beld by the Post Office and the Treasury, the gross saving in interest on the whole £115,320,000 of internal debt will he approximately £1,000,000 but reduction in interest will affeet the budget revenue in various ways. For instance there will be less income subject to taxation while the income of various Departments of State will be reduced. Allowing f or all direct effects and reactions from the lower net yield on both Government and local hodies securities, the nett gain to the budget is estimated at about £570,000. Investors are called upon to make a sacrifice by accepting a lower interest return, but, in regard to this, it is pointed out that as a result of ehanges in the value of money the purchasing power of fixed incom.es derived from interest have increased and there the 20 per cent. reduction in nominal rates will not

be the measure of sacrifice on the part of investors. For instance, since 1929 the cost of living figures have fallen round about 20 per cent., thus some reduction in interesi returns is warranted as a matter of equity. Position of Local Bodies I have so far said nothing about local body debt but when it is remembered that about 440 local bodies have securities on the market and that some of these are charged on special ridings or other limited' areas and are otherwise not uniform as to conditions it will be realised that anything in the nature of a general conversion for local body debt is not possible. At the same time it is evident that local hodies cannot be left out of an interest reduction scheme. Separate Bill to Come Accordingly a separate bill will he later brought down to provide for a 20 per cent.' reduction in the interest yield from these securities. Alternative provisions will however, be included to allow of conversion in the case of particular local bodies where in the opinion of the Loans Board satisfactory arrangements can be made for conversion. These propose als will however, be dealt with fully when the particular bill is introduced.