RAILWAYS REFORM. WHAT MR. MILLAR CAN DO.

Evening Post, Volume LXXVII, Issue 51, 2 March 1909, Page 3

RAILWAYS REFORM. WHAT MR. MILLAR CAN DO.

By A. G. Stephens. (Specially Written for The Post.) VII.— THE OPEN LINES ACCOUNT. It has been shown, in the series of articles of which this is the conclusion that "the 3 per cent, policy" for New Zealand railways has never had any real existence ; and it has been argued that, if "the 3 per cent, policy" ever had existed, that policy would be a bad policy for New Zealand. — (Ist February.) It has been shown lhat the value of "concessions" in fares and freights for which the Government takes credit has iailed, by an amount of £833,695, to equal the value of the excess earnings above 3 per cent. — which, according to the Government "policy," should have been returned to railway users. — (Ist February.) It has been shown, by a comparison between New Zealand railways and the same railways when under the charge of commissioners, and by a comparison between New Zealand railways and all Australian railways, that both in proportion to length of open lines and to traffic the New Zealand railway service is greatly overmanned ; and it has been argued that, after making every allowance for difference of conditions and for the improvement in the position of employees, there remains a surplus of unnecessary employees that must be due either to "political influence," or to bad management, or to both. — (3rd February.) It has been shown that the Australian railways, which are paying interest upon their debt to capital, contrive to carry their traffic on all lines with much less expenditure proportionately on rolling stock ; and it has been suggested that, despite the complaints of a shortage of wagons, the Minister may find upon enquiry that New Zealand railways are overwagoned as well as overmanned, and that the "shortage" may possibly be due to inefficient- management. — (9th February.) For tho Australian railways, like our own, have to meet "rush" traffic in the grain and wool seasons, and a much greater rush of traffic. THE "THREE PER CENT. POLICE" ABANDONED. And we have paused for a reply. Reply has come in the statement by the Minister for Railways that he has definitely abondoned "the 3 per cent, policy" as applied to current practice, and that he intends that the railways shall "pay their way the same as any ordinry business." Mr. Millar explained in Auckland that "the- 3 per cent, policy" was founded on the supposition that money to build the railways was borrowed at 6 per cent, interest, and "that now that the current rate of interest on loans is higher than 3 per cent., the railways can properly be^ asked to earn the- higher rate. This explanation, of course, has no warrant. It is true that under "The Consolidated Stock Act, 1877," £9,659 - 680 was borrowed at 3 per cent., or at a somewhat higher rate when the disco ant and flotation charges are. taken into account; but, with the exception of three small loans totalling £198,690 this is the sole amount, out of New Zealand's public debt of £67 per head of population, which has been borrowed &t 3 per cent. The following, according to the Official Year Book, are the rates of interest payable on the complete public debt:— f Rates of Interest. Amount at each rate ° P er cent £55.200 5 per cent 32i;000 4* per cent. 52 SO O 4 per cent 38,868,957 ff per cent. : 349,000 323 2 per cent 16,945,170 3 per cent. 9,858,670 Overdue 3 )00 0 Tot al £66,453,897 This total does not include the loans which the Treasurer has "successfully arranged" since 31st March, 1908— the rate of interest upon which has not yet been disclosed. MR. MILLAR'S EXPLANATION. The compiler of the Official Year Book estimates that 32.01 per cent, of the total public debt has been expended on railways, excluding the railways' share ot the "charges and expenses of raising loans." This percentage, with the addition of these charges and expenses amounts appioximately to one-third of the total public debt. The sum of £9 - 858,670, which is all that has been borrowed at 3 per cent., amounts approximately to only one-seventh of the total public debt. If Mr. Millar's explanation of "the 3 per cent, policy" be correct, therefore, the Government has been guilty of a. serious financial blunder, since it has argued that, because it was paying only 3 per cent, interest on about JO millions of capital, therefore it was 'policy" to earn only o per cent, interest on about 16 millions more, which was costing 3£ and 4 per cent, in interest. The explanation, of course, is all moonshine; because if there was any veality in it, it should have been made years ago, when the rate of interest on loans rose to 3£ per cent. That was the time when the Minister of Railways should have explained to the country that, since "the 3 per cent, policy" was based on a 3 per cent interest rate, there was then required a 3£ per cent, policy based ton a 3£ per cent, interest rate. Apparently the Government has only just woke up to the fact that "a 3 per cent, policy" and a 3£ per cent, interest rate >vill not agree. The explanation singularly fails, also, to take into account that "the 3 per cent, policy" with its best foot foremost could not possibly apply to more than about one-third of the railways capital, seeing that two-thirds at least of that capital is paying 3£ and 4 per cent. The average rate of interest on the total public debt is calculated in the Official Year Book at. £3 14s 7d per cent., and it is possibly this rate which has to be earned in order to make the railways "pay the same as any other business" ; although, as the Railways Statement contains no capital account, no detailed account of railways loans, and no information as to the rate of interest or the total amount of interest actually charged and paid upon railways loans, it cannot be ascertained what is the true interest rate which should be earned upon the railways capital in order to avoid an annual loss. Certainly that rate is not the average rate of £3 14s 7d per cent., and probably it is a higher rate. / One of the first things Mr. Miller can do is to ascertain — and to publish— a list of the railways loans, with the interest payable upon each, and the total amount of interest due annually upon capital, together with a list of the charges and flotation expenses due upon the notation of each railways loan, and a statement of how these charges and expenses have been dealt with, and of the additional interest due upon the capitalised charges and expenses, if any. Then Mr. Millar will know where he stands, and will have no need to say, like his predecessor in office, that the railways interest deficit last year was "about £100,000," but will be ablo to aay precisely that (be total interest paid last jpw to bond-

holders on the railways debt was so much, and the net revenue was so much, leaving the deficit or a surplus of so much. This, at least, is our idea of what is meant by "putting the railways on a proper business footing.'* "A 3£ PER CENT. POLICY.'* Mr. Millar, if he can, is going to make the railways "pay their way the same as any other business." What precisely does he mean? At Auckland he spoke of earning 3£ per cent. But last year the earning was £3 6s per cent. ; the year before it was £3 9s per cent. ; four years ago it was £3 11s per oent. The railways are earning little short of 3£ per cent, already, and if Mr. Millar can do no better than that he will do but badly. The differenqfe between the amount of last, year's earning and the amount of an earning of 3£ per cent, is, upon last year's capital, only £40,000, and Mr. Millar is taki7ig over a clear net profit of £20,000 from the Manawatu line ; so that in order to earn 3i per cent, upon last year's capital he would need only to get £20,000 more net from a gross revenue of neai'ly three millions. He I would get that amount merely by reducing last yenr's enormous expense rate to the overage of the previous three years. That is no feat to accomplish, but a plain necessity. And if Mr. Millar earns only 34 per cent, he will still show an annual interest deficit of g- per cent, or more, and the railways account will still go steadily to the bad. No ; the least Mr. Millar can do is to earn 3| per cent., or whatever is found upon investigation to be the average rate of interest which the railways are actually paying upon capital debt. And that means only a gain or a saving, in relation to last year's capital, of about £100,000 a year, of which £20,000 is turned into Mr. Millar's official pocket by the ManawatU| transfer. To save £80,009 a year on an expanding revenue of nearly three millions, and out of the swollen expenditure account of the New Zealand railways, involves no trouble at all — nothing that is worth the name of reform. Why, if Mr. Millar reduced the New Zealand expense-rate to the Australian rate he would save nearly five times £80,000 a year. It must be remembered that the New Zealand railways revenue is one of the most magnificent railway revenues in the world. Money has really to be thrown away in order that the railways account may show its annual loss. If the New Zealand railways last year, instead of paying £70 expenses for every £100 of revenue, had paid only what all Australian railways paid in 1906-7 — £57 expenses for every £100 of revenue — the New Zealand account would have shown a net surplus of £1,182,662. As last year's interest bill at 3f per cent, was £913,712, that^would have left an apparent profit of £268,950 to put against the £533,386 charged to the "Open Lines" account. In other words, if the splendid JNew Zealand railways revenue, which makes railway-users pay up so nobly in proportion to the services, given them, had been obtained last year at the expenserate of all Australian railways in 19067, the net earnings would not merely have paid 3^ per cent, on capital — thby would have paid more than 4f per cent. —4.85 per cent. And with traffic which yields a revenue like that, if only the expenses are kept down to an economical figure, it is mere child's play for Mr. Millar to talk of earning only 3£ per cent., and still passing along the weary annual deficit. i (To be continued.)