The Daily News. SATURDAY, JULY 16, 1921. LOAN ETHICS.

Taranaki Daily News, 16 July 1921, Page 4

The Daily News. SATURDAY, JULY 16, 1921. LOAN ETHICS.

It may be assumed that the general principles concerning the borrowing of capital for business purposes—whether pertaining to the State or private enterprise—are fairly well known and understood, both in their ethical and practical aspects. The chief factors may be said to be necessity, expediency and payability. A consideration of these factors in relation to the loan which Mr. Massey has placed on the London market is a matter of national importance owing to the abnormal conditions which exist at the present time and the manner in which the people may be affected by the addition to the Dominion’s indebtedness and the expenditure of the money obtained. As to the necessity for the loan there can be no two opinions. It is urgently needed, not only to carry on public works that are greatly in arrear, but to alleviate in some measure the temporary yet increasing unemployment. With regard to expediency, some difference of opinion may exist owing to the high price ruling for loans. It must, however, be conceded that whed money is urgently needed, the market rate must be paid. With an empty Treasury, a monthly expenditure of about £300,000 on public works, and depleted reserves of private capital necessitating large advances by, instead of substantial deposits with, the banks, there was no option for the Government but to borrow on the best terms procurable. Taking the present rate charged by the banks in the Dominion for advances, the flotation of the five million loan at a discount of four per cent., should be deemed good business. It will pay the investors six and a quarter’ per cent., and at the most will cost the taxpayers another half per cent, for flotation expenses. If this price is compared with recent loans to Australian States at six and a half per cent, at par, Australia six per cent, at 95, Sydney 6| at 99, and Auckland (Government guaranteed) 6| per cent, at par, it will be seen that the Dominion is obtaining the loan on quite as good terms as could be expected, thus exemplifying that the credit of the Dominion is favorably viewed on the money market. The most important question is whether a loan at such a much higher rate than heretofore can be made to pay. The answer depends entirely on how the money is spent, and it is on this point the public should indicate in no uncertain manner that it expects a new policy to be adopted—a policy of getting full value for every pound spent, and that not a penny shall be wasted or frittered away. Now is, the time for putting into action the best and most up-to-date business methods, the utilisation of effective labor-saving appliances, the concentration on railway works that will most speedily be reproductive, especially as regards filling up the gaps in the main trunk lines. It stands to reason that even by the adoption of the most economical methods, works that were formerly constructed out of capital borrowed at three and a half, four, and four and a half per cent., will now be handicapped by reason of the money costing probably 6-J per eent., and in view of the constant rise in the working expenses of our railways—the percentage having increased from 71.36 to 81.58 —a further increase in fares and freights seems inevitable unless a determined and drastic pruning takes place. A complete overhaul of the present system of railway construction and working is imperative, and is as urgent as the need for borrowing money at a high rate of interest. The country, .

is face to face tth financial conditions that need the most careful, yet firm, handling, and the responsibility rests on the Government to see that public money is judiciously spent to the best advantage, also that expenses are eut down to an irreducible minimum consonant with efficiency. This can only be accomplished by calling in the services of business experts, for it is hopeless to expect adequate reforms from within departmental circles. New conditions have arisen requiring new methods, and the country is entitled not only to the fullest information as to the financial workings of each department, but also to be protected from the effects of inefficient and wasteful methods.