The Minister said he does not think it wise to encourage this, that he thought it well to discourage people, if they could get money otherwise. Does he mean that? I want to ask also if a Government guarantee of 2½ per cent. is worth anything at all.
Sir Patrick Dun's Hospital Bill, 1953. - Committee and Final Stages.
Section 1 to 4, inclusive, agreed to.
Question proposed: "That Section 5 stand part of the Bill."
The principal is guaranteed, which is the important thing.
What the Minister said was that it is the borrower's job, when he negotiates his deed, to borrow the money at the best rate he can get, but, so far as the Government are concerned, they will only guarantee repayment at the rate of 2½ per cent. I am not going to get anybody I know at the moment to lend me money at 2½ per cent. and I must go to the full banking limit of 6 per cent., and consequently it seems to me that the Bill negatives its own reason by saying: "You go out and borrow the money and we will cover you for anything you get to the extent of 2½ per cent."
That has been the procedure for 20 years.
In the course of 20 years, bank interest rates have advanced mightily, and now stand at 6 per cent.
That is what the rate was 20 years ago.
That percentage would probably cover your guarantee 20 years ago, but it is not an effective guarantee to-day.
It never was. I am afraid the Senator misunderstands. The Government does not make any attempt to determine what would be a reasonable rate of interest for a loan for an industrial concern guaranteed by the Government. We guarantee the payment of interest up to 2½ per cent., but the actual rate of interest payable will be determined by market conditions. As a matter of fact, I was responsible for that change. When I became Minister for Industry and Commerce in 1932 the guarantee was for interest up to 5 per cent.
I think the bank rate was about the same at the time also and I thought it was unreasonable that the Government should guarantee repayment of interest at a higher rate than the borrower was able to negotiate in a few instances. I felt that the lender should take some part of the risk— a very small part because the important thing from his point of view is the guarantee that the principal amount will be repaid in the event of default. In any event, I felt then— and still think—that it was undesirable that the Government should attempt to calculate a reasonable rate of interest in a particular case—that we should give a guarantee of 2½ per cent. and let ordinary business negotiations settle the actual rate to be paid in a particular case. That rate may vary according to the circumstances of the case as well as the market price of money. I meant what I said when I expressed the view that it was undesirable that people should enter into industrial operations on the basis of having them capitalised by repayable loans, rather than on the basis of permanent investment, and, in their own interests, they are always advised, when they come to the Department, to endeavour to get permanent investment if they can.
I agree with the theory, but it is a long time since the theory behind this Bill was first discovered. When an opportunity arose for industrial development here, there were quite a number of men who had no means, men to whom the bank would not lend money but men who had gone through the fight for the country and who felt that the time might come when they might want to avail of the opportunities which would be provided by the industrial development which was to come. The Act was devised so as to give them an opportunity of making application for trade loans which would be vetted by a body to be approved by the Government and, ultimately, by the Minister. Maybe that time has passed and maybe these men now have all the money they want, but if the spirit of the Bill is still the same, the Minister should reconsider raising the guarantee from 2½ per cent. to 5 per cent.
The Chair will forgive my stressing this point, but I feel that it is very important from the industrial development point of view. I know one small firm which began in those days on a loan of £6,000, and, as the Minister has told us with regard to other industries, I should say that that firm's assets to-day are well over £250,000, due entirely to the fact that it got help in its early days. There are plenty of industrial enterprises waiting to be started here and numbers of men who need money to develop them. If these men could get the money from other sources, they would not avail of the Trade Loans Act at all. The Minister has said that his tendency was to discourage them, if they could get the money elsewhere.
If they can get it any other way.
I am in complete disagreement with that point of view, because I feel that the Bill should be so operated as to enable people of integrity, people with no means but with a national outlook, to get their start through a governmental loan, even with a guarantee in respect of a high rate of interest behind them.
I know of no case where an applicant under this Act who got a promise of a guarantee failed to negotiate a loan merely because the guarantee was in respect of 2½ per cent. Since the Act was passed, the Industrial Credit Corporation has been established which offers a far more effective means of financing industrial development than this Act.
I think it is right for me to say that I know of no general clamour from industry generally for the alternation in this Bill for which Senator O'Donnell asks and it is only fair that that should go on the records of the House.
And I know of no case in which £6,000, plus a national record, has turned into £250,000.
Maybe it is not as popular as it was.
Question put and agreed to.
Bill reported without recommendation, received for final consideration, and ordered to be returned to the Dáil.