small compared to the large exactions to which it has been subject. Further, a large proportion of the New Zealand Loan of three millions sterling, to be raised upon the credit of the whole Colony, is specially destined to promote the colonization of the Northern Island; while the remainder will be absorbed by a war in which the Colonists of the Middle Island possess no local interest, and from which they will derive no appreciable benefit.

On an assurance being given that a guarantee Bill will be introduced to the Assembly by the Government, the Superintendent believes that the Bank of New Zealand would be enabled to negotiate the Otago Debentures upon favorable terms; or failing to do so, that they would, instead of allowing them to be sacrificed, wait until the Guarantee Bill had become law; and by affording such temporary advances as may be required by it, the Province will be relieved from the possibility of its credit being endangered.

Fift[h]ly. There can be little doubt, that in order fairly to develop the resources of the Province and promote its colonization, Railways must be constructed to afford that cheap, certain, and rapid communication between the centres of commerce and the more remote Districts, by which alone a remunerative occupation of the interior of the country by a large settled population can be effected. As these works would involve not only a great outlay, but also considerable risks, if viewed from a purely commercial point of view, it is not likely that any satisfactory arrangement could be made for their construction by either a public or a private Company. The works would therefore necessarily devolve upon the Government, and can only be effected by means of extensive Loans.

As other Provinces are equally, with the Province of Otago, interested in this important subject, the Superintendent is of opinion that it is exceedingly desirable that some general principle should be adopted, by which all further Loans for Provincial purposes should be regulated.

He is of opinion that in all cases the following conditions should exist:—

1st. That the Province desirous of borrowing, should show sufficient security for regular payment of interest, and for the re-payment of principal, within a certain limited number of years.

2nd. That the purposes for which each Province shall be allowed to borrow shall be clearly defined, and that the works to be undertaken shall be in all cases such as are calculated to develop the resources of the Province, and promote its colonization.

26th July, 1864.

J. Hyde Harris,
Superintendent of Otago.

The Honorable The Colonial Secretary to His Honor the Superintendent of Otago.

Colonial Secretary’s Office,
Auckland 27th July, 1864.

SIR—I have the honor to acknowledge the receipt of your memorandum of this day’s date, forwarded to me in accordance with the understanding arrived at during an interview with Ministers on the 20th of July, on the subject of the Loans of the Province of Otago, and on its present and prospective financial position. In this memorandum, which fully enters into the subject to which it refers, you suggest that this Government should afford an assurance that they will prepare and introduce as a Government measure at the next Session of the New Zealand Parliament, a Bill by which the guarantee of the Colony may be given to the existing Loans of the Province, in order that they may be enabled to rank in the English Market as Colonial, and not merely as Provincial securities; and further, that should it become necessary to do so, the Governor will make a temporary advance to the Province of from forty thousand (£40,000) to fifty thousand pounds (£50,000), to enable it to meet its existing engagements catered into previously to the fact being known that Provincial Debentures were unmarketable securities.

The General Government have for some time past felt it necessary to give special attention to the subject of Provincial Loans; and the present application from yourself, and one of a similar nature from the Provincial Government of Canterbury, have rendered it necessary that some course of action should be determined on by this Government.

It is obvious that in making any provision for the future, the position of creditors who have advanced the money already raised in the different Provinces must not be overlooked. The question as to how far the Government of the Colony is liable, legally, equitably, or morally, on the security to creditors for money borrowed by the New Zealand Provinces, has often been discussed; and during the last Session of the Assembly a Select Committee of House of Representatives was appointed, to whom the subject of Provincial Loans generally was referred. No satisfactory result was attained by this Committee, which made no report upon the general question referred to them, but amongst other points which they considered, they appear to have given especial attention to the question of liability above referred to. The proceedings of this Committee, with other established facts, strongly impressed the Government that it had become necessary for the Assembly to deal with the question in a comprehensive manner at an early period, and although too late in the Session, when the Committee had concluded its labours, for any further steps, it was obvious that some legislation would be required in the following Session. Subsequent events have entirely confirmed this view.

It appears to this Government, that whatever may be the actual liability of the Colony in respect of Provincial Loans, a very strong feeling exists, especially in England, that at least it is the duty of the General Government to see that the money borrowed with its sanction under Acts or Ordinances assented to by the Governor, is repaid, and the engagements, as respects interest and sinking fund, fulfilled.

I do not propose to discuss the question as to how far creditors, having regard to the security they have accepted, can reasonably entertain expectations that the Revenues of the Colony, in no way pledged to them, should be considered liable for the engagements contracted with them, but I must admit the fact that many of them, in common with a considerable portion of the public at large, do entertain such expectation. It is therefore a question, setting aside other considerations, whether the General Assembly should not as a matter of policy take entirely under its own control the raising of Loans on the security of the Public Revenues and property; and there can be no doubt that it is of importance to the credit of the Colony generally, that the credit of the Provinces should not be damaged in their money-borrowing transactions.

This Government is also ready freely to acknowledge that having regard to the liabilities which the Southern Provinces are readily incurring for objects more particularly affecting the Northern Island, they establish a substantial claim to any assistance which can be prudently rendered, by affording them the use of the credit of the Colony to raise money for great public objects, which could not be otherwise obtained, or obtained only at a seriously enhanced cost. The impossibility of negotiating the Provincial Loans which have been authorized by the Provincial Legislatures of Canterbury and Otago of course presses this portion of the subject strongly on the consideration of the General Government.

In short, this Government is clearly of opinion that it is the interest, both of the Colony at large, and of the Provinces, that the power to borrow money should be confined to the General Assembly, or at all events, that no borrowing should be permitted without its consent, and that the credit of the Colony should