B.—No. 3.

above referred to. The proceedings of this Committee, with other established facts, strongly impressed the Government that it had become necessary for the Assembly to deal with the question in a comprehensive manner at an early period, and although too late in the Session when the Committee had concluded its labours for any further steps, it was obvious that some legislation would be required in the following Session. Subsequent events have entirely confirmed this view. It appears to this Government that whatever may be the actual liability of the Colony in respect of Provincial Loans, a very strong feeling exists, especially in England, that at least it is the duty of the General Government to see that the money borrowed with its sanction under Acts or Ordinances assented to by tlie Governor is repaid, with engagements as respects interest and sinking-fund fulfilled. I do not propose to discuss the question as to how far creditors, having regard to the security they have accepted, can reasonably entertain expectations that the Revenues of the Colony, in being pledged to them, should be considered liable for the engagements contracted with them, but I must admit the Fact that many of them, in common with a considerable portion of the public at large, do entertain such expectations : it is therefore a question, setting aside other considerations, whether the General Assembly should not, as a matter of policy, take entirely under its own control the raising of Loans on the security of the Public Revenues and Property, and there can be no doubt that it is of importance to the credit of the Colony, generally, that the ctedit of the Provinces should not be damaged in its money-borrowing transactions. This Government is also ready freely to acknowledge that, having regard to the liabilities which the Southern Provinces are readily incurring for objects more particularly affecting the Northern Inland, they establish a substantial claim to any assurance which can be prudently rendered by affording them the use of the credit of tie Colony to raise money for great public objects, which could not otherwise be obtained, or if obtained, only at a seriously enhanced cost. The impossibility of negotiating the Provincial Loans, which have been authorised by the Provincial Legislatures of Canterbury and Otago, of course presses this portion of the subject strongly on the consideration of the General Government. In short, this Government is clearly of opinion that it is the interest both of the Colony at large and of the Provinces, that the power to borrow money should be confined to the Assembly, or at all events that no borrowing should be permitted without its consent, and that the credit of the Colony should be pledged for such money as the General Assembly may consent should be raised for the use of the seveval Provinces, so as to enable them to obtain it at a lower cost. For the purpose of giving effect to these views the Government will be prepared to propose a Bill in the next General Assembly : 1. To guarantee on behalf of the Colony the Loans which have been already authorised by Act or Ordinance of the Provincial Legislatures, assented to by the General Government. 2. To prevent Provincial Legislatures from passing Loan Acts for the future, so that money to be raised on the credit of the Public Revenues and Property shall only be borrowed under the sanction of an Act of the General Assembly. This arrangement will give the several Provinces the benefit of the Colonial Credit for raising the greater part of the money aheady authoiised by Acts heretofore passed. With regard to Otago, it appears from your statement that the total amount actually raised by Loan in that Province up to the present is only £80,000, leaving a large sum already authorised to be raised on the credit of the Colony, if the General Assembly coincides iv the views of the Government and grants the proposed guarantee. With regard to any further sums which it may be found prudent and desirable to raise in order to carry out the Works in Otago, and detailed in your memorandum ; that will be a question for the Geneial Assembly, but I will only add, on the part of this Government, that although it cannot concur in everything that you advance, it is ready to admit that a strong case is made out in favour of further assistance. J have, &oi, William Fox. His Honor the Superintendent. Otago.

No. 3. '.THE COLONIAL SECRETARY, TO THE SUPERINTENDENT, OTAGO. Colonial Secretary's Office, 27th September, 186*4. Sir,— With reference to previous correspondence on the subject of a temporary advance of £40,000 or £50,000, to enable the Province of Otago to meet its existing engagements, I have to express my regret that, as the New Zealand Loan of £3,000,000 has not yet been negociated the General Government is quite unable to make any advance to the Province of Otago. I have, &c, William Jox. His Honor The Superintendent, Otago. H

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PROVINCIAL LOANS.