The Minister for Home Affairs desires to make a statement before we enter upon the business on the Order Paper.
NATIONAL LOAN.
MINISTER FOR HOME AFFAIRS (Mr. K. O'Higgins)
I have been asked by the Minister for Finance to make a short explanatory statement with regard to the Loan which is about to be issued.
The Loan consists of ten millions of 5 per cent. stock issued at 95 per cent. These terms are very favourable to investors in comparision with gilt edged issues at present on the market. The British 5 per cent. War Loan is quoted at over 100. The Commonwealth Government of Australia recently issued a 5 per cent. Loan in London at 99, and the present quotation is nearly 100. South Africa also issued recently a 5 per cent. Loan at 99½, and the present quotation is slightly in excess of the issue price.
The better terms granted by the Free State are due, primarily, to the fact that the credit of the country is an unknown factor in the outside world. In fact the financial position of the Free State should be at least as sound as that of the Dominion Governments mentioned in the preceding paragraph, and the actual security afforded for the present Loan, namely, the Central Fund, may be regarded as absolute.
A substantial Sinking Fund is provided in connection with this Loan. This will tend to keep up the market price after issue, as the Sinking Fund will be used to purchase stock that may be quoted on the market at or under par. For the purposes of the Loan generally, £750,000 a year is set aside. Out of this, the interest on outstanding stock will be paid, and the balance, which will increase automatically as the years go on, will be used for the purpose of the Sinking Fund.
The Loan is a Trustee security for Trustees in the Free State.
For the convenience of Southern subscribers, and of the Cork Stock Exchange, a Register of the Loan is being established in Cork. This is the first time that a Government Stock Register is being maintained in that city. It will enable dealings in the Loan to take place expeditiously in Cork, and without any necessity for brokers having to pass on their business to outside centres.
Dividends will be paid without any deduction of income tax at the source. Persons receiving such dividends, who are not within the income tax limit, will, therefore, be saved any trouble about applying for refunds of tax.
Another advantage of the Loan is that there is a prospect that the substantial yield which it allows will be payable over a considerable period of years. The Loan is not bound to be redeemed until 1945, but the Government has an option of redemption in 1935, or later. It is probable that holders can count upon keeping the Loan until 1945. In the case of the British 5 per cent. War Loan, the position in this respect is much less satisfactory. In that case, redemption must take place not later than 1947, but the Government may redeem in 1929. It is highly probable that the power to redeem in 1929 will be exercised by the British Government in that case.
This characteristic of the Free State Loan makes it of special value to Trustees and others who want to obtain a good income over a considerable period.
The fact that the Loan is primarily an internal issue has several advantages. An issue abroad would have to be made at a less favourable rate. This would directly result in imposing a heavier burden on the E chequer, and, therefore, in tending to keep taxation at a high level. Moreover, the dividends received by home subscribers will swell their, income and assist the yield of income tax, whereas dividends paid to foreigners produce no similar return for this country. Again, borrowing abroad is one of several methods by which inflation can most readily be achieved. This evil is far less likely to arise when the Government borrows from the savings of the country itself.
It may be suggested that the Government should go directly to the banks for the money that it requires and ask them to supply its needs out of the large deposits that they hold. The answer is that the Government have already done this on the limited scale on which alone it is justifiable. Larger borrowing by the Government from the banks would be directly inflationary, and could not be reconciled with sound principles of finance. The same objections do not arise if individuals, who have deposits in the bank, take steps to transfer them to the Government by way of subscription to the Loan.
The co-operation of all substantial holders of money is very important for the Loan, and it is very desirable that they should understand that the commercial interests of the country will benefit greatly through the Loan being a success. Taxation will thereby tend to be kept down, and the credit and stability of the country assured. The establishing of a sound credit now will contribute directly towards the financing of the State on a cheaper basis in future.
The terms of the Loan, however, make special provision also for attracting small investors. The Loan can be obtained in blocks as small as £10, and even that amount can be subscribed by instalments spread over a period of three months. The numerous advantages of having many small investors in Government securities scattered throughout the country need no emphasis.
The Minister asked me to add that he invites the hearty co-operation of all members of the Dáil and Seanad towards making the Loan the success it ought to be, towards making it a great act of faith on the part of the people of the country in their own future as a self-governing community.
I desire to ask if there is to be any term within which the lists will be kept open.
Mr. O'HIGGINS
I think the closing date is for the 10th December.