RAILWAY FINANCE.

Hawera Star, Volume XLVIII, 30 September 1924, Page 7

RAILWAY FINANCE.

MINISTER’S PROPOSAL

COMMERCIAL PRACTICE DESIRED

"I ain definitely of the opinion,” says the Minister (Hon. J. G. Coates) that the railway .finance and accounts should be on an entirely different footing, and brought into line with commercial practice as far a,s may be possible. The- first and most important step in this direction is the establishment of a separate railway account, into which all earnings will be paid, and out of which all working expenses met, as well as superannuation subsidies, actual interest on fixed and floating capital, and renewals and replacements. On the other hand, the railway account will be credited witfi all services rendered by it, including the loss, on operation of unpayable lines. It i s now generally recognised that the compiling and publishing of facts aiid figures relating to financial results in proper form will dispel ignorance and inspire confidence in the administration. In the past the New Zealand Railway Department’s accounts have been prepared essentially on a cash basis. All revenue earned is paid into the Consolidated Fund, and all ex_ penditure is provided annually by Parliament. It might be' contended that the proposals outlined will weaken Parliamentary control, but that is not so. In South Africa, for instance, the State railways are run as a separate account. Interest on the loan moneys provided by the Treasury and invested in the undertaking is a charge against the earnings of the undertaking. Parliamentary control is not diminished, as (a) all accounts are subject to Parliamentary appropriation each year, and (b) all investments of reserves,' etc., are under the control of the Public Debt Commissioners.

“Another important departure proposed is the making of adequate provision for depreciation as a charge against earnings, and the creation of a reserve fund. In addition to this, a betterment fund will be provided out of profits to meet expenditure for improvements of a non-capital nature. In South Africa all charges to betterments fund are subject to Parliamentary appropriation, and the same course would be followed here. “With reference to the accounts, these would be kept on double-entry principles and in commercial form. I have already expressed the opinion that given reasonable facilities, and with the finances placed on a more satisfactory footing, our railways can be made to pay their way. In the event of the system being worked at a loss, however, the adoption of the foregoing proposals would enable the accounts to show the true extent to which the railway service was a burden on the taxpayer. Provision will also: be made for deferred expenditure to be debited in the working account for the year in which it takes place, and be transferred to renewals fund, so that when the works are undertaken the funds will be available to meet the expenditure, and thus the accounts for, the particular year in which it is actually affected will not bear more than their liormal quota.” “In view of the existing conditions, it "is still necessary to take a conservative. view in making a forecast for the lailway revenue for the coming year.' 1, however, the revenue will leach £7,000,000 and the expenditure £6,050,000.”

The net profit of the working last year was £1,580,445, as compared with £1,225,305 for the previous year. The percentage of 'profit to capital invested was 3.83 or 70 per cent, more than in 1023. Other comparative figures are as follow;Percentage of working expenses to earnings 77.37 (81.79); net earnings per average mile, open, £519 (£106); net earning per train mile, 42.07 d (35,37 d). ' In his annual report for the year ended March 31, 1924, the General Manager (Mr R. \Y. McVilly) says that the capital invested in the lines open for traffic, including the steamers and plant on Lake Wakatipn, was £41,399,427, as against £40,275,161 for the previous year, an increase of £1,124,266. This amount included: £366,648, construction charges on lines already taken over from the Public Works. Department; £643,648 on new works charged against capital account under “additions to open lines” : £20,520 expended under the Railway improvement Authorisation Act. 1914; and the Cape Foulwind line, £93,450. The gross receipts for the year amounted to £6,984,211, as against £6,727,802 for the previous year, an increase of £256,109. The train mileage for the year, 9)024,503, was 677,722 more than the previous year. . The lines on which the additional mileage was run were:'Whangarei, 11,837; Kaihu, 3020; North Island Main Trunk, 437,542; South Island Main Trunk, 156,800; Westland, 78,902; and Nelson, 623. Decreases totalling 10,952 miles were made on the Gisborne, Westport and- Picton sections.

“The number of ordinary passengers carried during the year was 13,836,311. a decrease of 420,299 when compared with last year, and the goods and live stock tonnage was. 6,925,517 tons, an increase of 306,929 tons over the preceding year. The gross revenue for the year amounted to £6,984,211, of which the North Island system yielded £4,197,393. an increase of £187,716, and the ,South Island system £2,786,818, an increase of £68,693 on the • previous year’s figures. The increase from the whole system, including Lake Wakatipii. was thus £256,409 on the earning of the previous year, hut £15,789 below the estimate, due principally to the miners’ strike at Westport during the period September to January, and traffic holdups on account of slips, floods, etc. The particulars of the revenue earned are as follow: — 1924. 1923. £ £ Pas'sengers; ord. 2,136,999 2.216,514 vSeason tickets ... 212,601 204,106 Parcels, luggage. mails 406,832 393,322 (foods 3.953.213 3,671,008 Miscellaneous, rent., etc. 274,566 242,852 £6,984,211 £6,727.802

The working expenditure (including £10,400. the cost of working the Lake Wakatipu traffic) amounted to £5,403.166. a decrease of £98,731 on the expenditure for the previous year, and £646,234 below the estimate. The ratio of expenditure to earnings was 77.37. as compared with 81.79 for the preceding year, a decrease of 4.42.

In the locomotive branch £2851991 was expended in the provision of additional rolling stock, tarpaulins, Westinghouse brake, steam heating, electric iigiits for engiifes and cars, and workshop machinery. The rolling stock in respect of which the charges were incurred comprised 19 locomotives, 37 oars, 1 bogie brake van, and 31 bogie and 58 four-wheeled wagons completed on March 31, 1.924: and 22 locomotives. 166 carriages, 5 brake vans and 137 bogie and 472 four-wheeled wagons incomplete. hut in hand on that date. In recording his opinion that the separation of the-railway finance from that of the general nuance of the Government would be distinctly adavntageous. and that the Department’s system of

accounts should be brought into line with those of an ordinary business concern, the General Manager says he :hinks that the policy of regarding the railways as a commercial concern, in the sense of being self-contained as to its finance, .and reciving credit from other appropriate Departments for concessions granted as a matter of policy, and which-cannot.be justified on pureiv railway grounds, is desirable in the public interest as well as from the point of view o.f the efficiency and welfare of the Department as an operating concern. “I do not, however, desire to be understood as advocating that the policy of using the railways for developmental nurposes should be abandoned,” he says. “This is a matter on which I' do not feel at liberty to comment. I desire to record the foregoing observations only as indicat■ng my opinion that the mere change of the form of the railway accounts would have little significance, and would indeed be apt to be misleading unless they, as business accounts, com ■ tituted a record of the operations of a concern conducted on recognised business principles.”

The policy of rigid economy has been strictly pursued during the "year, and in consequence the percentage of expenditure to .revenue has been reduced below that of the previous year. It is cully realised'that it is only by reducing expense to the greatest "possible extent that the Department can be placed' in a position where it can compete with other forms of transport and attract- additional traffic by the reduction of charges. The expenditure side of the Department’s finances is, in the nature of tilings, more directly within the control of the Department than the revenue side, and in respect of expenditure. therefore, there is a greater scope for vigilant activity in the direction of placing the finances of the Department in the most favourable position that the nature and quantity of the traffic permit. In this connection it is interesting to note that for the year ended March 31, 1922, there was ■i deficit, after allowing for interest on the capital expenditure on open lines at the “policy” rate (32 per cent), of £1.021,156. In 1923 the deficit was reduced to £284,385, and for the year now being dealt with there was a surplus of £31,502; ; and, as indicating the extent to -which economy of expenditure has assisted towards achieving this result, it is to, be noted that the percentage of expenditure in 1922 was 93.89; in 1923, ‘81.79; and in 1924. 77.37.

The necessity for requiring that every proposal involving further expenditure shall disclose a reasonable prospect of a commensurate return must be an absolute condition of the adoption of any such proposal if the finances of the Department are to be placed om a strong "footing. This does not necessarily mean that every proposal shall he hound to afford an immediate return within the not-too-distant. future. In this connection it is necessary to guard'against the usual extreme optimism of those advocating services or concessions involving expenditure,' while at the same time avoiding the unduly pessimistic view which would, in a young country such as New Zealand," be a bar to progress. The avoidance of undue conservatism on one hand and of indulgence in unduly speculative expenditure on the other has been.a constant care of the management throughout the year, and it is believed that in the face of many difficulties the operations of the Department have rendered general satisfaction ’to the people of the Dominion,, while, as already indicated, it has been possible to attain this measure of achievement at a. cost- below that of the previous year. Calculating the interest on the capital invested in i the railways at the policy rate of 3 per cent, from 1896 to 1909, and at the policy rate of 32 per cent, from 1910 to 1924 inclusive, the total net amount required to be earned by the railways to. meet the interest charges is £27,252,551. TJie net amount actually earned is £28,667,936, a surplus of £1,415,385, which was paid into the Consolidated Fund in excess of the policy requirement; In addition, reductions mqde in rates in pursuance of the noliev amounted to over £2,000,000. During the ten years, Ist April, 1924, to, the close of the year Under review, the- railways have returned a sum of £327,027 in excess of the amount remired to pay" working expenses and interest at the policy rate of 32 per cent. It .should be taken into account that these ten years embrace the period affected by the war and postwar conditions.

The policy obtaining in New Zealand lias been to regard the financial return as of less immediate importance than the development aspect, and for that reason the return required on railway capital has been fixed at 32 per cent., which is, of course, less than the average interest on the public debt. The value of the concessions granted in railway rates and services, however, , represents a sum more than sufficient to cover the difference between the. interest at the policy rate of 32 per cent, and the amount that would he required to meet the full liability at the average rate of interest on the public debt in respect of the capital invested in the railways.