Railway Finance.

Press, Volume LXII, Issue 18670, 20 April 1926, Page 6

Railway Finance.

In pursuance of its aim to " place the "railways on a business footing," the Government, as we mentioned last week, has decided that the Consolidated Fund will be drawn upon to make up the deficits on the working of certain sections and branches. This is an innovation, and it is in one respect a good one. Formerly the railways were badly managed, and with the continued failure of the system to yield a u profit on working " sufficient to pay the interest on invested capital, somebody—this is eighteen years or so ago —had'the happy, thought that the developmental services of the system excused its managers from paying more than a " policy rate " of three per cent. That was in a day when road competition did not exist—when nothing but sheer bad management stood in the way of genuine profit from the operation of

the railways. Mr Coates has decided that the unsound principle of a " policy "rate" less than the real rate of interest on capital must go. The new method of railway accounting will at least enable the public to see how the various sections and branches are faring. Whether it will actually help towards efficient management we cannot feel quite certain; but there does not appear to be any reason for jumping to the conclusion, as some Auckland critics are doing, that it is only a new cloak for inefficiency, the old fraud in a new suit. As we understand Mr Coates, the Department has decided that there are certain branch lines " which even the most intense applica"tion of business principles could "never make into payable propositions," and that the Consolidated Fund shall bear the weight of the losses incurred in operating them. The Department will at the same time be credited with the profits from the lines which do pay. The net result in the books will be a profit for the Department. A little reflection will show that this is a much sounder scheme than it may at first sight appear to bo. The Department, anxious to show the best results—we are assuming, of course, that there is a definite break with the old methods of management which have cost the Dominion so much —will endeavour to make the best profit where profit is possible, and it will therefore have a strong incentive to become efficient in its operation of these lines. But it cannot develop any real Erasure of efficiency without benefit to its operations generally. The weak lines, if the Department fulfils the expectations of Mr Coates, who is satisfied with the results so far obtained from the reorganised management, will benefit from the methods pursued in quest of better results from the strong lines. If the new arrangement turns out less well than is expected, it can easily be abandoned, for it is not dependent on legislation, and in the meantime we await with interest the details of profits and losses for the year recently ended, which the Department ought to make as full as possible.