Financial.

Southern Cross, Volume 1, Issue 39, 23 December 1893, Page 17

Financial.

THE SINKING FUND QUESTION As a good deal was heard on this ; subject during the election, the following extracts from an article contributed to Fairplay (Wellington) by Mr H. B. Vogel, a son of our former 'Colonial Treasurer, and himself an unsuccessful aspirant for Parliamenary honours, will be of interest : “ For years and years the great financiers of England rejoiced in the delusion that a Sinking Fund was a kind of magic charm, whereby the indebtedness of a country was to wipe itself off. By means of the operation of compound interest the public debt might be reduced by borrowing money to pay it off. They had no doubt ■upon the subject. Strings of figures and sheets of paper proved it, and the scheme was accepted even by Pitt. None the less it -was unsound, and the Sinking Fund, whether operating at compound interest or otherwise is, ’unless founded on the principle that excess of revenue over expenditure is the only true Sinking Fund, an exploded theory. The credit of pointing this out lies with Dr Hamilton, and when one calmly considers the matter one is indeed astounded at it everhaving been believed in. And yet Sinking Funds are still in existence, and we are asked to once more wor--ship them because New South Wales has floated a loan with a Sinking Eund. The question is supremely simple in one respect. Is it wise to repay borrowed money whilst on the other hand you are borrowing ? The answer must be in the negative, unless the new money is to replace the old at a lower rate of interest. In a young country where borrowed ■money is necessary for expenditure on public works, and where the scarcity of population intensifies the annual burden of taxation, a young country that has before it a future of wealth and prosperity, and every prospect of ■ an enormously increased population, the great object is to reduce the ■amount of money to be paid annually. Strict economy and a careful spending form the path of prudence, and when in course of years, the necessity of constantly spending money on .public works ceases, that same economy and care will enable the repayment of the debt. This is the true Sinking Fund—the excess of revenue over expenditure. Any other is a pure delusion. In an old country, where the population will in all probability increase exceedingly slow, and public works consist rather of repairs than erecting, the Sinking Fund may be justifiable as representing this excess. This is in Engljancl fixed by statute as being, as regards the public debt, the amount of reduction. But when money is being, and will for some -time to/come be, borrowed, other considerations must be regarded. This colony! is a very good case in point. Up t(/j 1884 an enormous amount of moneiV, some £250,000, had to be found! for Sinking Fund accretions. At the same time we were obliged to jrrotv money for the erection of public! works. We were in fact, on ■ the hand directly paying away this large amount of money, whilst on the other we were borrowing. The - operation, from a financial point of ■view, jwas unsound. The Colonial Treasurer of the day most emphatically stated it, Sir Harry Atkinson . agreed, \and the system was financially condemned. In connection with the foregoing it may be that Mr Vogel has carried/ the following motion at the Welh/figton Council —“That, in the - opinion of this council, it would be moist advantageous to New Zealand Todal bodies —especially to the city of Wellington, with a view to the conversion of its loans and the reduction off interest —if the New Zealand law relating to raising Joans by local bocilies were amended in the direction ■ of allowing loans being issued in the form\ of registered stock loans, as well • as tlite present form of debentures ;

and that the delegates of the city to tlie Municipal Association be instructed to bring the above x-esolution before the association, and support and advocate a recommendation to make the said amendment.