THE RAILWAYS.

Lyttelton Times, Volume CXIX, Issue 14609, 17 February 1908, Page 8

THE RAILWAYS.

INTERVIEW WITH THE PREMIER. A REPLY TO RECENT CRITICISMS. [From Our Correspondent.] CAMBRIDGE, February 16. Interviewed upon the subject of the criticisms on New Zealand railway administration, made recently by Mr Samuel Vaile aad Professor J. E. Le Rosaignol, as u, result of which, a report wias presented recently to the Auckland Chamber of Commerce from its exeoutive committee, the Premier made an important statement. He 6aid: It has been one of the extraordinary and painful sides to the criticism of the State railways in this country for some years past, that th e political opponents of the administration in power have tried by almost every conceivable means to discredit the position and the value of the railways. In reference to Professor L© Rossiguol's article on New Zealand .railways, Mr Vaile has pointedly referred to the article in various typical letters to the Press. Apparently he Is gratified to find himself in what he regards good company on railway finance. I should .not be surprised that the criticism of the Auokland Chamber of CommeTOe has been actuated by Mr Vaile, who a few years ago unsuccessfully endeavoured to influence the Wellington Chamber. Le RossignoFs statistics, like his conclusions, are based on wrong premises, and show conclusively that his grasp of the position of railway matters m New Zealand is most superficial in character. His deductions are, therefore, erroneous and misleading. In the first place he takes the capital cost of the opened and unopened lines-, ■which, it should be remembered, includes the whole of the expenditure made over a series of yeans under the head " Additions to Open Lines,'*' and totally ignoring that fact, he deducts from the net earnings of each year the expenditure on account of "Additionsto Open Lines" for that year, and thus arrives at what bo terms "the true net profit on working." This method reduces his figures to an utter absurdity. It resembles closely the Vaile method of arriving at results of working railways, which have so often, been shown to be fallacious. The effect of the method is strikingly shown by the following:—ln his table for 1897 the professor gives the capital cost of our railways as £16,534,980, which includes unopened lines and all additions to open lines expenditure to March .31, 1897, inclusive. He then deducts the sum of £64,717 on account of additions to open lines for that year from the net earnings, and thus arrives at the percentage of earnings to capital 2.62. If the professor intended to deduct the amount spent on additions to open lines from the net profit on working, it is obvious that he should, in common fairness, have first reduced the capital cost by the same amount before attempting to arrive at what he terms "the true net profit." Moreover, as the additions to open lines expenditure is cumulative year by year, it follows that each year the deduction that should be made from the capital under the professors system would be greater. The professor has entirely failed to grasp this fact. For 189"9 the capital cost, £17,190,967, shown, by the professor, includes £401,380 of expenditure on additions to open lines, yet he deducts from the net earnings of the railways for that year the sum of £179,932 that had been spent during the year on additions to open lines, and already included in the capital. This is equivalent to making a double charge of £581,303 against the railway. For 1903 the capital is shown as £20,214,900. This includes £2,145,924 of money spent on additions to open lines, yet the professor again deducts from the net revenue the sum of £423,167, which represented the expenditure on additions to open lines for that yeaT, and was included in the capital cost. He is thus enabled to arrive at what ho terms "the true net profit," 1.01 per cent. Had he made a proper deduction froim. the capital cost and thou followed his own method, "the true" position would have been found to be 1.12 per cent instead of 1-01. In 1906 i the capital cost is shown as £24,092,085. Tins includs £3,122,478 additions to open lines, yet the professor, ignoring this, deducts £353,025 additions to_ open, lines expenditure, which is also included in the capital cost, from the net earnings shown in the railway report, and thus arrives at the conclusion that " the true net profit" is 1.66 per cent. In this instance had he made a proper deduction from the. capital by his own method the percentage would have been 1 -79 per cent. The net result of the professor's method has been to reduce the net earnings of the lines by £3,122,478, and although contending that the additions to open lines should be a charge to revenue, he has omitted to make any deduction whatever from the capital cost of opened arid unopened line* thus destroying the whole basis of has calculations and rendering his work valueless from the outset and his facts and figuros inaccurate and misleading. It is difficult to understand how the professor arrived at the conclusion that it was a fair thing to debit the working railways with the amount in suspense and unopened lines, and expect the opened lines to pay interest on the money so invested. Such a system is not followed by any radway or other financial institution, and no return from capital outlay is ever expected until such time as.the concern is completed and in working order. The capital cost of unopened lines which is included in the professor's table was in 1897 £957,588, in 1899 £786,891, in 1903 £1,133,200 in 1906 £1,593,113. The inclusion or last- year was equivalent to deducting £47,793.fr0m the net earnings of the working railways to pay the interest on the capital cost of unopened lines. Applying Professor Le Rossignol's peculiar method to the capital invested in the opened lines, what he calls " the true percentage " would be, in 1897 2.79 instead of 2.62 as shown by him, for 1899 1.25 instead of 1.11, for 1903 1.19 instead of 1.01, and for 1906 1.93 instead of 1.56.

When the professor wa6 in Wellington he was, upon his own inquiry, personally informed that the policy initiated by.the Government in 1895 was that the railways should only be expected to give-a net return of 3 per cent, on the capital invested therein, an<3 that whotn3ver the earnings exceeded the 3 per cent the Government had decided to "give back to the users of the lines, by way of concessions in fares and freights, the excess earnings over 3 per cent; that in this way a very large amount of money had been returned to the public, but notwithstanding thio the railways year by year gave a net return of over the 3 per cent expected from them. It was made quite clear to him that the Government laid it down as the main plank in its policy of railway management that a progressive poiicy should be adopted, and the lines regarded as adjuncts to the settlement of the dominion, the earning of a large profit being looked upon as of minor importance when compared with the incalculable benefits that accrued to the State by giving the settlers a convenient and cheap means of transporting the products of their farms to the market, and our business people low rates to assist in enabling the people in. the interior to have the benefit of merchandise and their requisites for working their lands and businesses, as the case may be, at the lowest possible cost, and also to the mass of the people a very large concession in railway fares was made to give thorn an opportunity of travelling to and from the towns as cheaply as possible. No sane person could deny that this policy had enormously helped the development of the country, our trading concerns and every class of people throughout the dominion. Professor Le Eossignol's assumption that there has been a loss of £4,380,147 pa the railway* duriag tk e last tea

years is entirely erroneous. It is manifestly wrong for the professor to I include the £31,224,478 in the capital cost of the lines and compute the interest on that sum and at the same time deduct the additions to open lines expenditure from the net profit of j working. Having left tho amount in j the capital it may fairly be assumed that tho professor was satisfied that the practice of including the " additions to open lines " expenditure in the capital was correct and sound in principle. Clearly, therefore, he has erred in deducting £3,122,478 from the net earnings. The net loss shown by him must, therefore, be reduced by this £3,122,478, additions to open lines expenditure, ' which he has wrongly deducted from the working expenses. This leaves a difference of £1,257,699 required, according to the professor's showing, to bring the interest on the capital cost of the railway up to tho {full 3.75 per cent which he contends S they should earn. The concession given j to the public in the matter of fares and | freights amounts to £850,000 and the j value of tho increased train services to ! £830,000. These concessions, repre- j i senting money the Government has re- ; i turned to the users of the railways. \ I jointly total £1,733,000, or £475,000 in ! j excess of the amount that would have . been required to pay 3J per cent In- \ terest which the professor esmmes to : be the average rate paid for the capita! i Invested. This takes no account of the j concessions in pay given to the railway j staff, which amounted to another j £875,000. ■ Professor Le Rossignol's line of argument is that the railways should earn the full amount of and that the value of the lines as adjuncts to settlement should not be taken into consideration, and, in fact, that the policy of being satisfied with a net return of 3 per cent from tho railways and giving the people of the dominion as concessions in fares and freights the surplus over 3 per cent is wrong in principle, ana that what should be done is to work tho railways as a mere revenue-earning machine. The net profit of working to which reference is made is shown clearly in the railways statement as being the difference between revenue and expenditure, and which is available for interest purposes. Tho figures shown In railway reports and copied into Professor Le Rcssignol's table, give the true result of j working the railways, aud s-how that in j no instance have our railways given a return of less than 3 per cent, even when the capital cost of tho unopened lines has been included. With regard to the question of what items should or should not be charged to additions to open lines the practice followed by the Department is perfectly sound in principle, and is, moreover, in J acoord with the practice iu operation in other States. It has been, fully discussed at various times, and has received the concurrence of such men as Mr F. Matheson, late Chief Commissioner of Victorian Railways, and afterwards general manager of the Midland Railway, England; Mr Charles Olliver, Chief Commissioner of New South Wales Railways; Mr David Kirkcaldie, of the same line; Mr Pendleton, Chief Commissioner in South Australia: Mr Shallon, Commissioner in Queensland, and Mr John Davis, general manager of the Western Australian railways, now holding a prominent position on the Midland Railways. England. The following figures show the cost per mile of maintenance for the past six years of- the New Zealand and Australian railways, and also of some of the principal leading railways in America and Canada., and the United Kingdom:— 1901 1902 1903 190419051900

The operating expenses of the Balti-more-Ohio railway increased by no less than £IOB per mile during the period, 0.1 to 0.6, and that notwithstanding the fact that the length of line -was increased by over 800 miles during the same period. The cost of operating a mile of railway on the New York Central and Hudson River Railway, a system ' consisting of 3784 miles, was in 1901 £2537, the percentage of expenses to earnings being 64.12, iu 1902 £2823 per mile, percentage 66.09: in 1903 £3124 per mile, percentage 68.69; in lJuo £3285 per mile, percentage 71.43; in 1906 £3502 per mile, percentage 71.96. The net earnings on the New York Central decreased £lB2 per mile between 1902 and 1906, although the length of the line open increased 464 miles. On the St Louis Railway, 1275 miles, in 1901 the operating expenses per mile were £726, percentage 62.72; 1906, operating expenses £922, percentage 74.52. Atchison-Santa Fe system, 8431 miles, 1901, operating expenses £826 per mile, percentage 59.23; in 190 J, operating expenses £863, percentage 57 34 • in 1906, operating expenses £llsO, percentage 62.14. The operating expenses of this line increased largely in the period stated., notwithstanding the increase in the length of ! line. This feature is observable in all the other lines in America, and as shown similar results attend the operation of the railways in the United Kingdom and in the most of the Australian States. The addition in the cost of operating railways arises from the advance in the price of material and the great improvements that have beem made in wages and hours of employees generally, and' in no country in the world is this improvement more pronounced than in the railway system of this dominion. Notwithstanding tho reduction in faTes and freight and tho increase in the wages and shortening of hours of employees the railway statements that have been presented to Parliament during the last thirteen years show in the clearest manner possible the satisfactory results that have been achieved in working the New Zealand railways since the Government resumed their control. . "So much then," continued bir Joseph, " for the reliability of Professor Le Rossignol's criticißm." From the financial standpoint it would bo admitted, he thought, that a professed avtthority who made a mistake amounting to £3,122,478 in a oriticwni of the financial position of the New Zealand railways, even though he was quoted by the Auckland Chamber of Commerce and supported by Mr Samuel Vaile, could not, by that portion of the people who were deeply interested ill the welfare of the railways, be taken very seriously. So far as the policy of the country was concerned, which the Government had laid down definitely, namely, that of returning, to the users of the railways all earnings over 30 per cent, it was a clear-cut issue for which the Government must accept full responsibility. The value of the concessions to the users of the railways was incalculable, even beyond the actual amounts which had. been conceded to them. It would be the easiest thine in the world to make tho State

railways of New Zealand produce a large dividend. There was no reason why 10 per cent could not be taken out, but would it be a wise course to follow P No doubt Professor Le Rossignol's opinion or judgment upon such | a matter would be regarded by those who were anxious to adversely criticise ! the opening up and development of the i country, and the carrying on of scores |of the "industries both in town and I country, by means of cheap railway ' freights and facilities, as an argument I to condemn the railway policy of tho i country. Quite irrespective of ProfesI sor Le Rcssignol's opinion, this country ! would for at least many years go ou ! utilising its railways as the great en- ! giue to help and promote the general | interests of the people both in town j and country, but as tho executive of ! the Auckland Chamber of Commerce ' had stepned in and taken sides with I both Professor Le Roesignol and !Mr Vaile upon contentions which I were both fallacious and incor- ! rest, he would suggest to them ! that they; should submit pro- | posals for increased rates upon, say, | merchandise to produce an additional ! £150,000 a year. Doubtless in their I magnanimity and their desire for a ' railway policy of their own to be estab- : lished, they would readily consent to uinglo their special interests out so as to produce the additional £150,000, of course with the assurance that they would not raise their prices to the retailor aud the consumer. One thing was perfectly certain, that the Government would not raise rates to the farmers and producers or to those engaged in industries which were giving large employment or for the conveyance of passengers over the lines*. Some of the other criticisms made regarding the railways were ;> the Premier concluded, so absolutely misleading and incorrect that they were hardly worthy of serious consideration on the part of any well-wisher of the country.

£ £ £ £ £ £ New Zealand 196 196 204 213 217 229 Victoria 156 161 154 158 162 143 N. S. Walsa . 148 174 179 160 163 149 Queensland . 120 143 124 105 98 91 6. Australia 97 108 104 78 91 US W. Australia 1S5 163 149 162 154 203 Tasmania 12G 132 130 125 111 116 Cape • 178 200 289 371 407 — Natal 173 265 277 2SS 239 237 United Kingdom 275 281 284 283 283 287 Canadian-Pacific 111 149 149 171 176 193 Central Grand Trunk 186 204 275 233 234 253 Baltimore-Ohio . 355 378 314 841 390 463