Title: War Economy

Author: Baker, J. V. T.

Publication details: Historical Publications Branch, 1965, Wellington

Part of: The Official History of New Zealand in the Second World War 1939–1945

This text is the subject of: ‘Something of Them Is Here Recorded’: Official History in New Zealand

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Borrowing in New Zealand

Though war taxation bit deeply into incomes, it was borrowing which, in every year except 1945–46, provided most funds for war.

After 1939 a substantial internal loan was floated in each war year, with two loans in 1942. The Government had decided that the great bulk of the borrowing would be done internally, and, though war payments made on New Zealand's behalf by the United Kingdom were recorded as loans, they were progressively repaid out of money raised internally for war purposes.¹

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The New Zealand held public debt rose from £146 million in March 1939 to £473 million in March 1946, providing £327 million for wartime finance, and no doubt taking a very substantial proportion of this sum out of money which would otherwise have been spent on consumption or on private capital formation. The gross amount of new borrowing internally between March 1939 and March 1946 was £358 million, but a further £27 million was converted from the register of externally held debt. Repayments of £59 million reduced the net sum to £327 million.¹ Of the £358 million of gross new borrowing in New Zealand, £242 million was used to meet war costs,² £74 million was used for development works, such as hydro-electric generating stations and state housing, £29 million was used to repay overseas debt³ and £13 million for other purposes.⁴

In the same period, from March 1939 to March 1946, overseas debt, expressed in New Zealand currency, was reduced by £45 million. The overseas held public debt stood at £167 million in March 1939 and was only £3 million higher in March 1945. Substantial repayments were made in the next financial year, and by March 1946 the debt stood at £122 million.⁵

The Government's policy of borrowing internally had the effect of changing the proportion of the public debt held in New Zealand from 47 per cent in March 1939 to 80 per cent in March 1946.

Of the £242 million borrowed in New Zealand for war purposes, some £10 million was raised by way of compulsory loan.

In the 1940 Budget Statement, Mr Nash said:⁶

‘A start towards the provision of interest-free loans has already been made by generous voluntary effort on the part of many citizens, and to date nearly sufficient has been subscribed to balance the War Expenses Account to the end of last financial year. But that is not sufficient. It is not right that others equally capable of affording assistance should not make their due contribution. In this connection it is the intention of the Government to formulate for the consideration of the House a procedure under which all who have means will be required to assist by subscribing to loans for these purposes. Those who already have or who may in the future voluntarily lend money free of interest, may have the amount already subscribed taken into account in determining their total liability under this heading.’

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However, only the first war loan, issued in 1940 and maturing in 1953, was compulsory. The minimum subscription was to be ‘an amount equivalent to the amount of income-tax payable in respect of income derived during the year ended 31st March, 1939, decreased by £50 in the case of individuals and £70 in the case of companies.’¹ The stock was not to bear interest until 1 October 1943.

Special war loans for voluntary public subscription, floated with intensive publicity appealing to the patriotism of the people, became a feature of wartime borrowing. Public support for these loans was generally very encouraging.

Chart 56 shows the rapid increase in public debt over the war years and the extent of the concentration on internal borrowing.

A summary of successive war loans follows.²

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War Loans

Year and Month of Issue	Amount of Loan	Contribution in the Form of	Rate of Interest	Date of Maturity	Remarks
	£(m)		Per Cent
1940	101	Stock	2 ½	1 Oct 1953	Compulsory. Non-interest bearing to 1 Oct 1943.
Aug 1941	10	Stock (two classes)	2 ½ 3	1 Aug 1946 1 Aug 1951–54	Oversubscribed £200,000.
May 1942	15	Stock (two classes)	2 ½ 3	15 Sep 1947 15 Sep 1952–55	1st Liberty Loan. Oversubscribed £2,500,000.
Oct 1942	10	Stock (two classes)	2 ½ 3	15 May 1948 15 May 1953–58	2nd Liberty Loan. Oversubscribed £500,000.
Jun 1943	35	Stock (two classes)	2 ½ 3	15 Jun 1947–49 15 Dec 1953–56	3rd Liberty Loan. Oversubscribed £4,275,000.
Aug-Oct 1944	40	Stock (two classes)	2 ½ 3	15 Feb 1949–50 15 Feb 1955–58	Victory Loan. £672,104. Oversubscribed
May-Jun 1945	25	Stock (two classes)	2 ½ 3	15 Apr 1950–51 15 Apr 1956–59	Victory Loan. about £500,000. Oversubscribed

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In addition to these loans, the National Savings Act 1940 made provision for the issue of savings bonds, with a five-year term, in denominations of £1, £10, and £100, and for the opening of special savings accounts with the Post Office and trustee savings banks. These special savings accounts were to have a two- or three-year term. The bonds and accounts bore interest at 3 per cent. Money invested under this scheme was paid into War Expenses Account. By 31 March 1946 a net total of £40 million was invested.