Eco-Economy: Interest Free Council Loans Possible

Interest Free Local Government Loans Are Possible

Ratepayers continue to suffer because local authorities are paying interest on their loans for essential capital works when they could be getting this money interest free from the Reserve Bank.

Heather Smith, organiser of the Democrats "Sovereignty" campaign has estimated that within New Zealand, over 15% of New Zealander's rates now go to the servicing of loans. So a ratepayer paying rates of $1000 a year might well be paying $150 a year in interest to overseas banks, overseas pension funds or any group that was investing in local body loans.

But is this likely to happen? Although under the First Labour Government the Reserve Bank lent money at low interest rates from 1936 for the building of state houses and for the Dairy Board, local authorities have not yet been known to put pressure on the Reserve Bank Governor to provide this service for their ratepayers.

A phone call to Local Government NZ to speak with a man in their Economics Department confirmed that this was not an issue for LGNZ. In his memory of the last six conferences, the matter had not been raised. Imagine if local governments got together on this issue! What a powerful lobby group that would be.

But does the Governor have this power and is he likely to use it?

NZ Banking Reform wrote to the Reserve Bank and had an email back confirming that the Governor of the Reserve Bank does have this power.

Michael Reddell, Chief Manager, Financial Markets Department of the Reserve Bank of NZ told us "You are correct that there is no statutory restriction on who the RBNZ can lend to, or the terms on which they can lend. Note, however, that under the current legislation the government (say) could not direct us to lend to anyone (including the government itself) and nor could it specify the terms at which we should lend. That would be entirely a matter for the Governor."

A subsequent conversation with Michael Reddell has confirmed that the Minister of Finance could have considerable influence with the Governor if she or he was sympathetic with the suggestion, or if this didn't work might legislate to give Government more power in this issue.

The Alliance itself does have a policy in favour of this, but the minority Democrats, who favour this policy very strongly, do not have much influence within the Alliance. So they started their own campaign.

The Nelson City Council, after lobbying from the NZ Democratic Party, wrote to the Minister of Local Government, Hon Sandra Lee on August 2000 asking her to implement this policy. To our knowledge they have not received a reply. We understand Thames District Council is also interested.

Since it is local body election year, NZ Banking Reform is organising a meeting to look at this issue. It is to be held at Connolly Hall, Hill St, Thorndon on Monday 30 April at 7.30. The speakers will be Stephanie Cook, Alliance candidate for Wellington Mayor, Nathan Goodhue, Heather Smith, and Lowell Manning.

Feedback to Deirdre Kent Chairperson NZ Banking Reform
Email: deirdrek@paradise.net.nz

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