D.-No. 5.

Enclosure to No. 24. Sib,— Downing Street, 26th May, 1864. I have the honor to inform you that Mr. Secretary Cardwell has considered the application which, as Finance Minister of the New Zealand Government, you have made to him, viz., that he will propose to Parliament that the intended Loan of Three Millions authorised by the recent Act of theNew Zealand Assembly should be raised with the assistance of an Imperial guarantee. Mr. Cardwell has desired me to express his regret that he cannot undertake to make to Parliament any such proposal; nor does he think that such a proposal could be made with any prospect of its being approved and adopted by Parliament. He is fully prepared, however, to consider the claims of the Colony to a guarantee of less amount. In a despatch addressed to Sir George Grey, on the 26th of December last, the Duke of New castleexpressed his readiness, on the conditions there set forth, to submit again to Parliament the proposal for a guaranteed loan of £500,000, which had been already submitted towards the close of the previous session, but had been withdrawn because Mr. Crosbie Ward, then acting for the Colony, had not determined on accepting the terms offered till the opportunity for legislation had been lost. Since it appears to be the wish of the Colony that this arrangement should proceed, and certainly the altered circumstances do not enable the Colony to dispense with any assistance which it required when that Bill was introduced into the House of Commons, the Secretary of State is still ready to proceed with it at your request. The arrangement as then made provided for a payment to the Treasury of a sum of £200,000, which was to cover the amount of debt then due to the Home Government. But the terms on which the Lords of the Treasury were prepared to concur comprised a stipulation that provision should be at once made for repaying all advances from the treasury chest, with interest at tho rate of four per cent, on such as had remained unliquidated for more than three months. It now appears that advances have been made, either in money or in arms and stores, amounting to somewhat short of £300,000, and thusraising the total debt to the Treasury to a sum approaching £500,000. If Her Majesty's Government are to submit to Parliament a proposal for aiding the Colony by an Imperial guarantee, the first condition will bo that out of the money so borrowed by the Colony, the whole debt due to the Mother Country shall in the first instance be discharged. It is evident, therefore, that if the guarantee be limited to £500,000 so largo a portion will be absorbed by the debt tothe Treasury, that scarcely anything will remain to be applied either to the other purposes contemplated in the original Bill, or to the liquidation of the great subsequent expenses which have been or will be incurred by the Colony. It is estimated by you that those expenses up to the end of the present year will amount to nearly eleven hundred thousand pounds (£1,097,172), or, excluding the debt to the Home Government, to nearly £800,000. Mr. Cardwell acknowledges the force and weight of many of the considerations which have been urged by you as reasons why the Colony should resort to a Loan for expenses which, in the Mother Country, would be discharged in part at least from current revenue : such as the fact that the whole population of tho Province of Auckland, from 16 to 55, has been drawn away by the war from industrial pursuits ; that the Southern Island, having a less immediate interest in the suppression of the rebellion, would feel the charge upon the annual revenue as a serious hardship ; that the Colony is compelled, on the return of peace, to make large payments, both for military purposes requiring to be wound up and discharged, and also for prospective measures of improvement consequent upon the return of peace, without being able to apportion that expenditure to its present means, or to wait for the most favorable state of the market to bring out a Loan. Mr. Cardwell also feels that the prospect of avoiding future disturbances, with all the accompanying evils and expenses both to the Colony and to the Mother Country, will much depend upon judicious and comprehensive measures to be taken at the time of the restoration of peace, and that an embarrassment in the finauces of the Colony at that juncture would tend to prevent the accomplishment of those measures and to cloud that prospect. Vet, notwithstanding these considerations, he is not prepared to recommend to Parliament a guaranteed loan to any such amount as that which you have requested of Her Majesty's Government. Upon the whole, Mr. Cardwell concludes that the guarantee originally promised by tho Duke of Newcastle may again be submitted to Parliament, and that the amount may be increased by the sum due, and to be repaid to the Imperial Treasury, and by a further sum of about £200,000 to be applicable to the general purposes of the New Zealand Government. The whole sum, therefore, to beguaranteed will amount tt> £1,000,000, of which, as far as at present appears, somewhat less than haltwill at once be repaid to the Imperial exchequer, and somewhat more than half will bo aj)plied to purposes of the Colony for the pacification of the North Island and liquidating the expenses of the war. This should be raised at a rate of interest not exceeding 4 per cent, with 2 per cent, for sinking fund. The actual ordinary revenue of the year 1862-3 amounted to £549,963, which exceeded by .£259,296 the necessary expenses of the General Government; the revenue of the Colony has hithertu rapidly increased, and is estimated for the current year at £691,600, and tho whole of this revenue with its prospective increase is to be the security for the Loan. Mr. Cardwell thinks that this security is sufficient, and excludes the risk that any actual payment will fall to be discharged by the Imperial Treasury. He leaves out of consideration the land pledged by the Act of the Assembly, which he cannot regard as adding anything definite or certainly and immediately available in the way of security. I am directed to observe that Mr. Cardwell makes this offer to you as the Finance Minister of New Zealand, in the confident expectation and belief that the recent successes of the Queen's forces and of the Colonial militia and volunteers will have placed in the Governor's hands the power of securing a just and permanent peace; and that his own disposition and the instructions which have been addressed to him from this Department will ensure his using that power for the early termination of the war. It is only under this conviction that the Secretary of State can undertake to submit this proposal to Parliament; and if the proposal be accepted by you, your acceptance must be understood as conveying on your part and that of your colleagues in the Government of New Zealand an assurance

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DESPATCHES IHOM RIGHT HON. E. CARDWELL, M.P.