THE BUDGET

Dominion, Volume 22, Issue 263, 2 August 1929, Page 13

THE BUDGET

(Continued from Page 12.) publie debt at first sight would appear to be a staggering burden to be carried by our relatively small population, and undoubtedly it would be a very heavy burden for the Dominion if the debt were wholly deadweight like the debts of most of the countries of the Old World. Our war debt, of course, is wholly unproductive, but it now amounts to little more than one-quarter of the total. The greater part of the remainder, raised for public works, land settlement, and State advances, is self-supporting. The proof of this lies in the expenditure figures. For instance, during the last financial year the actual payments for interest and statutory debt repayment charges on the debt amounted to £12,779,721, but. as pointed out when dealing with the expenditure only £6,024,395 of the burden fell on the taxpayer, and of this amount the greater portion—to wit, £3,797,979 —was on account of war debt. The balance of the interest payments was provided for out of the earnings of our interest-earning assets. State Advances, for instance, provide the whole of the interest on their portion of the debt. Further, in addition to the actual recoveries in cash, it must not be overlooked that the expenditure of the capital which gave rise to the debt has contributed in no small measure to the development of the Dominion, and though it cannot be accurately assessed in pounds, shillings, and pence it cannot be gainsaid that the railways, roads, bridges, and other public works have been productive to a greater degree even than is indicated by the expenditure figures just quoted. GOVERNMENT’S BORROWING POLICY. I The Government is certainly not going to embark on any programme of extravagant expenditure out of loan money, but is going to see to it that as far as possible. further debt is incurred only for the purpose of providing what is essential for the economic development of the resources of the country. So long as this principle is observed, and steps are taken to see that the State obtains full value for its money,* the wealth of the community will increase at a greater rate than the debt charges, and there will consequently be no increase in the relative burden on the taxpayers. Guided by these principles the Government will have no hesitation in borrowing the additional capital necessary for land-settlement, for State advances, and for the completion of the trunk railway lines. STATE ADVANCES LOANS AUTHORISED QUESTION OF LENDING RATES State advances was another matter to which the Government gave immediate attention on assuming office. The previous Administration had restricted the funds available for advances, with the result that settlers and workers had to wait for months and even years for an advance. When the Government took office there were several thousands of applications on hand, involving an amount exceeding £4,000,000. Obviously the first tiling tq do was to deal with these arrears of applications, and he immediately arrange* to place additional capital at the disposal of the State Advances Board, and gave instructions that everything possible was to be done to get properties valued and generally expedite matters. As a result the accumulation of applications had now been overtaken, and beyond the time required to attend to the valuation of properties and arrange the necessary formalities, there was now no delay in dealing with applications. Thus settlers desiring loans to assist them in their farming operations, or workers desirous of building homes for themselves, were no longer handicapped by having to wait for long indefinite periods for loans. In addition to assisting the individual anplicants, the expediting of the State Advances had undoubtedly stimulated the Umber trade, provided work for carpenters. plumbers, and various other tradesmen. and generally assisted materially towards overcoming the unemployment problem, LOANS AUTHORISED. Since December 10, when the Government assumed office, up to July 29, loans were authorised by tbe State Advances Board as follow :— £ To 2006 settlers .... 2,420,790 To 2749 workers .. 2,384,995 4755 £4,805,785 Loans paid over during the same period amounted to £3,319,300. All the additional capital required for State advances was obtained locally. He had no difficulty in obtaining all the money required; and, while it might be a matter of indifference to the individual applicant where the money for his loan came from, the fact that the Dominion out of its own savings, was able to find the money to finance settlers and workers was of considerable economic importance. In addition to the proceeds from local sales of public debt securities, additional capital for advances to settlers, has been obtained locally from the sale of longterm rural bonds, securities which are finding increasing favour with the investing public. Since this branch of the State Advances Office was started in April, 1927, approximately £1.900.000 worth of bonds has been taken up. These bonds, bearing interest at 5 per cent., to mature in 1947. are at present being sold nt £94 10s. per cent., giving a return to investors with redemption of the discount over the period of the loan of approximately 54 per cent. LENDING RATES. ‘•Having satisfactorily disposed of the more urgent matter of clearing up the arrears of applications, the next step is to concentrate on the question of interest rates. This, of course, is a matter that will be gradual, the governing factors being the rate at which fresh capital can be raised, and the cost of refinancing the existing loans when they fall due. It must also be borne in mind that loans borrowed in recent years have been at relatively high rates, which, of course, have to be paid until the loans in question mature. It is well known, however, by all who have any knowledge of finance that though the nominal rate of interest on our last two London loans was 4J per cent., the discount price would not permit of lending out on that basis right away. The break in the old rate of 5 per cent, in May, 1928. indicated ' that according to circumstances governing world finance rates would gradually work down to 44 per cent, at par, but it is Impossible for any on® to say when that position will be reached. I am honeful that the lending rates for new advances can he started on the downward path before long. The Settlers’ Branch last year made a profit, of £30,465. equal to 3s. per cent, on the capital invested, and the Workers’ Branch a profit of £10,887. equal to 2s. Id. per cent, on the capital. Notice of intention to introduce the Wellington City Empowering Amendment Bill. 1929. was given by Mr. It. A. Wright (Wellington Suburbs) yesterday in the House,

RAILWAYS POLICY FACING GROWING LOSSES NON-PAYING BRANCH LINES PROBLEM CAPITAL TO BE WRITTEN DOWN The Minister summed up the Government’s policy in regard to transport as follows: — , ~ (a) To complete the trunk lines as the backbone of the system: (b) Not to build any more short branch lines where the transport needs can be adequately catered for by motor services on a good motor road: (c) To investigate the position oi the present branch lines with a view to doing away with those that are found to be obsolescent: (d) To write down the railway capital by the amount contributed thereto from revenue, and cancel the present subsidy from the Consolidated Fund: (e) To co-ordinate the railway and motor road construction policies: (f) To take steps to bring about coordination between road and rail transport services. “The benefit of this policy lies in the checking of the present dangerous drift into economic waste, which» if allowed to go on, bids fair to increase the railway losses to be borne by the Consolidated Fund from the present figure of £500,000 to £2,000,000 a year within a few years; a charge on taxation that, to say the least of it, is most disturbing to contemplate. I am satisfied that when the policy that I have outlined is carried out the drift will be checked, and the operation of the completed trunk railway system of the Dominion will earn full interest on its capital and thus will not entail any burden at all on the taxpayers.” Dealing with the position of the railways, with which was involved practically the whole transport problem of the Dominion, the Minister said he doubted whether the true significance of the problem was generally appreciated throughout the Dominion. The railway revenue for last year amounted to £8,249.038, and working expenses to £6.849,383, leaving a net revenue of £1,399,655. Subsidies on branch lines and isolated sections (paid and accrued) amounted to £498.937, giving a total of £1,898,592 available for interest charges amounting to £2,331,335. The result of the year’s working was, therefore, a loss of £432,743 so far as the Railway Department was concerned under present arrangements. The subsidies merely represent losses already borne by the Consolidated Fund, so that the disclosed loss for the year is approximately £930,000. as against £280,000 for 1925-26, the first year of operations under the present system. The real loss is even greater than is indicated by these figures, as there are certain capital charges which the railways have not been asked to carry.

“Now, that part of the loss which is at present-carried by the railways must be met out of their working capital, and such reserves as they have for renewals and depreciation, etc., and as soon as these are represented only by accumulated losses, the railways will obviously be unable to carry on without further assistance from the Consolidated Fund. This will mean that the whole of the losses will have to be borne directly by the taxpayers as the same accrue, and I am satisfied that if the present drift is allowed to go on for only a few years longer, the taxpayers of this Dominion will have to find not less than £2,000,000 a year to meet railway deficits. That is what we are faced with.” INCREASE IN CAPITAL COST. The heavy construction costs of the lines added to the system in recent years, together with the extensive programme of improvement works authorised by the previous Governments, and better rolling stock, had together been responsible for raising the average capital cost per open mile of line from £12.106 in 1920 to £17,210 in 1929, This had meant increased interest charges, especially in view of the high rate for money that had ruled in recent, years, against which net earnings per open mile had gone down in about the same ratio as the capital cost had gone up—Tiz., from £551 in 1920 to £353 in 1929. FALLING-OFF IN EARNINGS. As to the causes of this falling-off in railways earnings, the Minister drew attention to the following comparison, to obtain which the additional revenue and expenditure in connection with advertising, motor services, and other subsidiary services had been omitted from the 192829 figures:—

It Will be seen that the seat of the trouble lies in the passenger traffic, where the revenue has declined, notwithstanding the fact that over the period, lines opened for traffic increased by 281 miles, while passenger train-mileage run increased by about 60 per cent. Had the passenger revenue increased in the same ratio as the goods revenue all would have been well. MOTOR TRANSPORT.

The falling-off in the passenger traffic is undoubtedly due to the development of motor transport, which is becoming a rapidly-increasing factor in the transport system of the Dominion as elsewhere. As things are at present there is no possibility of the road transport doing the whole job, and superseding railways in the same way as railways displaced the coaches. It seems likely, however, that in certain classes of work, particularly short-distnnee suburban traffic, the roadmotor will prove the most economical form -if transport, but for long-distance traffic there is no doubt that when all costs are taken into consideration the railways provide tbe cheapest and most efficient means of transport. The present long-distance motor competition is profitable to-day because the motor is required to bear only part of the cost of surfacing nnd maintaining the principal roads, and escapes the interest charge on the capital cost of all roads, as well as many other charges incidental to motor traffic. The irony of the situation is that the heavy losses on the publicly-owned railways are being largely brought about by good motor roads being built, also with public money, to facilitate direct competition with the railways. In other words, State capital is being provided to assist in the direct undermining of the earning-power of £57,500.090 of State capital already invested in railways. The trains have to be run to carry the bulk of the traffic, and they could handle the whole of the long-distance traffic practically without any additional cost. Thus the long-distance motor competition amounts to pure economic waste, which the country can ill afford. MAIN HIGHWAYS POLICY. Goods roads are, nevertheless, necessary, but unless the road-motor is to be made to carry the full eost of the roads so ns to force traffic into the most economical channels (and even this would involve economic waste through unnecessary duplication of services), the main highways policy must be framed as fains possible to bring about not direct coinpetition, but co-ordination with the railways. The amount of borrowed capital available for reading purposes is not unlimited, and reads away from the railways should be the first consideration in the interests of trade and production. This aspect of the transport question appears to have been largely neglected up to the present. CO-ORDINATION OF TRANSPORT. In fnet. it has been found in practically all countries that the only solution of the

problem lies in co-ordination between the two forms of transport. In New Zealand, where only the road transport is in private hands and the railways belong to the State, it is clear that nothing will be done in this direction unless the Government takes steps to bring about cooperation. The Government desire to encourage motor transport as feeders to the trunk railway lines, and to and from those districts not directly served by the railways. The Government has already taken action in the direction of setting up a Ministry of Transport and an advisory council. It is proposed to broaden the basis of the council by giving the railways adequate representation thereon, and by adding ' representatives of the commercial and farming interests who are also directiy interested, in that unnecessary and wasteful duplication of transport facilities can only lend to higher transport costs all round. This Council, representative of all interests concerned, will be asked to fully investigate the whole complex problem and report to the Government as to the best means of eliminating wasteful competition and promoting coordination between the road and rail transport facilities of the Dominion. So far as the railways themselves are concerned, the Government is convinced that the trunk lines must be the backbone of the transport system, and every effort will he made to complete the trunk lines as soon as possible. Where the transport needs of any particular district can be met by motor transport on a good motor-road, no further branch lines of railway will be built. PROBLEM OF BRANCH LINES. The existing branch lines, almost without exception, do not pay working expenses, let alone interest on the capital eost of construction. At present losses on branch lines and isolated sections are covered by a subsidy from the Consolidated Fund, which last year amounted to approximately £500,000. The isolated sections will for the most part be linked up with the trunk lines when the present construction proposals are complete. The branch lines concerned consist of six short lengths of line. in the North Island, on which the working loss, apart from interest, was £32.598 for 1928-29: and. including the Otago Central line, twenty-two sections of line in the South Island.: working loss for 1928-29. £115.578. The total working loss on branch lines was thus £148.176. from which was deducted £57.592 for the estimated feeder value of these lines. Interest on the capital at 4 1-8 per cent, amounted to £273.221. making the total net loss on branch lines £363.805. Subsidy for losses on isolated sections amounted to £132.773. making a grand total of £496.578 paid out of the Consolidated Fund last year. Some of these so-called branch lines —the Otago Central line, for instance —must remain as an integral part of the railway system, but some of the short lengths of line merely tacked on to the main lines have clearly served their purpose, from a developmental point of view, and with the development of motor transport such lines have become obsolescent. ,In such cases any private concern would probably tear up the railway lines, and it Is a matter for consideration as to whether the Government should not do likewise. Clearly it is necessary to have all the facts, and the matter will be referred to the Council accordingly. In any such case where private enterprise has already established adequate motor services no further action by the Government would be necessary, but in other cases it might be necessary for the Railway Department to run motor service. Either way the Government would see to it that the residents of the districts concerned have adequate transport facilities. WRITING DOWN OF CAPITAL. As to the loss of capital invested in such lines, the Minister pointed out that part of the capital for the Public Works Fund has been provided out of transfers from national revenue, and when an allocation is made it is found that approximately £8,100,000 of the total railway capital has come from surplus revenue. Thus the. capital sunk in lines that are done away with can be written off without impairing the total of assets representing loan capital. In any case, the Government lias decided to go further than this, and write down the capital of the railways. .At the same time the present subsidy out of the Consolidated Fund will be. abolished. The present arrangement is unbusinesslike and confusing, and the propert thing to do (assuming it can be done) if the assets are not worth their cost from the point of view of earning power, is to write down the capital. That is what any" commercial concern would do. The capital cost of track and buildings of the branch lines at present covered by the subsidy arrangement is approximately £6,250,000. Thus, when the railways have been relieved from payment of interest on £8 100.000 of their capital, not only will there be no interest payable by the railways on account of branch lines, but there will be an additional saving of interest to them to be set off against the working loss on those branch lines, which, after investigation, it is decided to retain. Writing off the capital in this way will not involve any additional loss to the Consolidated Fund, as at present the interest received on branch line capital is handed back to the railways through the subsidy. On the other hand, the Consolidated Fund will not be relieved of any interest charge through the cancellation of the subsidy. . The proposals simply mean that the canital derived from surplus revenue will be written off. and that will be the end of it so far as interest is concerned. THE EARTHQUAKE RELIEF FUNDS AND RESTORATION WORK After referring to the action taken by the Government immediately after the recent earthquake, the Minister dealt with the question of relief funds. It was impossible at this stage to estimate what amount would be required for this purpose, but it was probable that the relief funds would only touch the fringe of what was necessary to ensure people in the stricken areas all the help possible to restore their position. In administering the relief funds so generously subscribed the policy must he that persons in the poorest circumstances shall be assisted first of all. Others might be able to repay the cost of repairs by instalments, but each case would receive careful con sideration when all applications were received. It was essential to the equitable distribution of the relief funds to obtain a reliable estimate of the amount of assistance required. The restoration of the districts in roads, bridges, railways, public buildings would be a work of great magnitude, involving heavy expense to the Government. Attention would first be given to making tracks as temporary means of access to the settlements at present cut off as a result of the calamity. The Main Highways Board was arranging to reopen main roads where possible without delay, and where this could not be done steps were being taken Io open or explore new routes to the main centres in the area affected. The restoration of public buildings would also be carried out as quickly as possible. Legislation would be introduced to validate grants to relief funds by local authorities. including Harbour Boards. Grants bv other public institutions, such as savings banks, etc,, would be similarly provided for.

ESTIMATES OF 1929-30 INCREASED APPROPRIATIONS TOTAL OVER £700,000 TAXATION OF STATE TRADING DEPARTMENTS Before having recourse to additional taxation, said the Minister, the estimates of expenditure for the current year had been most carefully overhauled with a view to reducing them to a minimum consistent with the maintenance of the existing services. Increased debt charges and other rigid items called for an increase under permanent appropriation of approximately £709.000. but under annua) votes the reductions effected had kept the increase over last year's expenditure down to £30,000. At the same time the items of revenue, apart from taxation were also scrutinised with a view to seeing that all legitimate recoveries and Departmental receipts would be brought to account. In order to place the State trading departments on a basis more comparable with outside organisations, be had decided that in future the State Fire Insurance Office nnd the Public Trust Office should be called upon to pay land tax. In addition, as the Post and Telegraph accounts had been separated from the Consolidated Fund and placed upon a commercial basis, it was proposed that this Department should, in future, be charged with Customs duty on its imports. In reviewing the interest recoveries from the various separate accounts, it was found that the Main Highways Account was paying no interest on a portion of the capital borrowed for construction purposes. This it was- proposed to adjust. Then there is due to the Consolidated Fund some accumulated interest on enemy property moneys, which can be paid in this venr, and also certain unclaimed moneys in tbe hands of the Public Trustee. It was the practice to pay such unclaimed moneys into the Consolidated Fund, but bitterly the receipts have been held up owing to n technical defect in the Public Revenues Act. which will be remedied. ESTIMATED REVENUE. The net result is that the revenue for the rear is estimated as follows: £. Customs 8.4( It >,()<>() Beer duty 600.000 Motor vehicles—Duties, licenses, etc 1.4-12.000 Stamp and death duties .... 3.614.000 Land tax 1.493.000 Income tax 3.400.000 Interest on public moneys .. 820.000 Interest on capital liability— Railways 2.450.000 Postal and Telegraph . . . 480.000 Interest on Public Debt Redemption Fund 995.000 Other receipts 1,478.000 £25.172.000 The above total includes i!.112.000 Io be received on account of "Motor vehicles —Duties, licenses, etc.", but this is ear-

marked for specific purposes, and is not available to meet general expenditure. ESTIMATED RESULTS. The position for the financial year is estimated to be — £ Revenue 25,172.000 Expenditure— £ Permanent appropriation .. 16.946,000 Annual appropriations .... 7.964,000 Leaving the amount of .. 262,000 to provide for supplementary estimates and contingencies. GOVERNMENT’S POLICY. The measures proposed to ensure a stable finance for the annual Budget and the more far-reaching measures dealing with railways, land settlement, and public works will, said the Minister, give effect to the mandate the people of the Dominion gave to this Government. To sum it all up, the cardinal points of the Government policy are :— (a) To take immediate steps to obtain a balanced Budget, as this is a matter which cannot wait for the fulfilment of the more far-reaching proposals. (b) To provide a permanent cure for the unemployment difficulty and pave the way for decrease in the rates of taxation, by incrensing'The prosperity of the Dominion on a solid basis through vigorously fostering land settlement, (c) provide all l he capital necessary to enable the State Advances Office to cope with the demand for loans for development ’ of farms and tbe building of houses for workers. td) To accelerate the completion of the trunk railway linos, in order that these unfinished works may be brought into operation and made interest earning, nnd at the same time provide more work. (cl To deal with the present unsatisfactory financial position of the rail ways nnd institute a comprehensive system of co-ordination in transport, in order to check the present dangerous drift into economic waste;. which otherwise will undoubtedly impose greatly increased burdens on ’he fnxnnvers. “It will. I think, be generally recognised that there has been little delay in formulating nnd initiating these reforms, in view of the short period 1 have had to investigate lhe country’s affairs since taking office in December, but the same industry and application will now be applied Io tbe vigorous administration of the policy measures outlined, in order that the beneficial results I confidently expect will be realised at an early date. “As regards the financial and economi) nosition generally I am glad to say that the outlook for our primary industries is good nnd nmole canital is available to finance trade and industry. Internally our favourable overseas 'rad" balance has not vet reflected its full value, and this nhnso. unfortunately is concomitant with the unemployment difficulty. a difficulty that T venture -vod-ot will be cured -nlv l-v c vi-or-’ i—intstration of the fondn-ontal reforms the Government has in hand.”

1919-20 1928-29 Revenue— £ Passenger traffic 2,594,440 2,502,887 Goods traffic .. 2,950,237 4,846,125 Miscellaneous .. 201,810 175,852 Total operating Revenue ... 5,752,487 7,524,864 Working expenses 4,105,007 6,374,597 Net operating earnings £1,647,420 £1,150,285