B.—4a,

850. That this free capital has been the means of maintaining the stability of the Land for Settlements Account and creating a false impression that land purchase and subdivision has been more or less profitable will be evident from the following review. 851. The Land for Settlements Act, 1925 (a consolidation of previous measures), provides that the capital value of land leased under the Act shall not be less than the purchase price plus the cost of roading, survey, and other costs in connection with the land. In actual practice all costs are not definitely ascertained before land is placed on the market, and the purchase price is increased by an amount sufficient to cover the estimated cost of roading, survey, &c., and an insignificant amount for contingencies. In some cases estimates of subdivision costs prove to be inaccurate, and further capital has to be provided, and in these cases the excess amount is a direct loss to the Crown. It has nevertheless been provided out of the Land for Settlements Account, and the fact that these losses have occurred has been obscured by reason of the benefit derived from the free capital mentioned above. The Land for Settlements Act does not prohibit the loading of land with a reserve to meet contingent losses ; but, notwithstanding this, the Department seldom, if ever, is able to add anything to the estimated costs to provide for future contingencies. 852. It may therefore be taken as a general rule that the capital values at which land acquired under the Land for Settlements Act, 1925, is offered for selection are intended to be just sufficient to cover the cost of acquisition, roading, survey, &c., together with interest on capital up to the date when land is placed on the market. Theoretically, therefore, the Department sustains no loss of capital, and if settlement is effected immediately the land is offered, there is no loss of interest on the cost of acquisition. Land is, however, often not selected immediately it is made available, and a direct loss of interest occurs during the period of non-occupation. There is power under the Land for Settlements Act for the Minister to reduce the capital value of any allotment prior to selection and if this discretion is exercised there is therefore an initial loss of capital. 853. The foregoing deals with initial losses of interest and capital, but the most frequent source of loss occurs after selection, when the Crown has to face losses due to abandonment of holdings, remissions of rent either during periods of depression or when natural disasters occur, and, finally, settlers may apply for and obtain general revaluations under the revaluation provisions of the Act. 854. As no adequate reserve is provided when land is first placed on the market all these losses must be borne by the Land for Settlements Account. 855. As regards the rental return derived from land disposed of, the Act provides that rent shall be assessed at 5 per cent, on the capital value of the land —that is, on the actual cost —but the net return to the Land for Settlements Account is considerably less than this, as the rent is subject to a rebate of 10 per cent, for prompt payment and to a deduction of 2| per cent, for administration expenses. The net return per £100 of capital is therefore :— £ s. d. £ s. d. Rental .. .. .. .. .. .. 500 Less rebate (10 per cent.) . . 0 10 0 Less administrative expenses .. ..023 0 12 3 Net .. .. .. . . £4 7 9 856. Assuming, therefore, that the capital required for the Land for Settlements account can be borrowed at 5 per cent., there is a direct annual loss of 12s. 3d. per cent, oil all land purchased, and this does not take into account any losses due to land not being immediately selected or to concessions by way of remissions or revaluations granted after settlement. This loss of 12s. 3d. per cent, must be borne even under the most favourable circumstances, assuming that land is immediately taken up, that it is not at any time abandoned after selection, and that the settlers always pay their rent on due date and do not obtain any concessions by way of remissions or revaluations. 857. It thus appears that the time is rapidly approaching when the Land for Settlements Account will not be able to pay its way ; indeed, were it not for the large amount of free capital which has been provided over a long period of years, the account to-day would be showing substantial losses. Our investigations show that there have been large reductions by revaluations of properties, and the Crown has been forced to provide remissions and other concessions to a considerable extent. 858. The fact that some assistance must shortly be provided from general taxation towards the payment of interest on loans raised for land-settlement purposes is evident from the following statement which shows the net return of the Land for Settlements Account over the last three years. Net Profit. £ 31st March, 1929 .. .. .. .. ..53,163 31st March, 1930 .. .. .. .. .. 18,447 31st March, 1931 .. .. .. .. .. 5,296 859. There can be no doubt, therefore, that the account is steadily going back, and unless remedial measures are taken there must in future years, if an active land purchase and settlement policy is continued, be a steadily growing burden on taxation. 860. The first and most important point is that the basis for the calculation of rent is inadequate in view of the present cost of loan-money, and we strongly recommend that the Land for Settlements Act be amended to enable the basis of calculation of rent to be determined by the Minister of Finance, having regard to the interest payable on loans raised from time to time for the purposes of the Land for Settlements Account. 861. It would be possible without an amendment to the law to obviate to some extent the direct loss in interest. Assuming that loan-money can be raised at 5 per cent., it would be necessary for

88