THE New Zealand Herald AND DAILY SOUTHERN CROSS. FRIDAY, SEPTEMBER 22, 1922. MR. McVILLY'S APOLOGIA.

New Zealand Herald, Volume LIX, Issue 18202, 22 September 1922, Page 6

THE New Zealand Herald AND DAILY SOUTHERN CROSS. FRIDAY, SEPTEMBER 22, 1922. MR. McVILLY'S APOLOGIA.

, ■«*_ The case for running the railways at a loss has been presented with an impressive weight of argument in the General Manager's report to Parliament. Mr. McVilly still relies upon the general defence of war conditions as a complete answer to all criticism of his management, but he evidently realises that this plea is becoming less effective as the war recedes further into the past and the losses on the railways continue. He has* therefore, made a survey of results over periods of 26 years and eight years, and concluded that on the average the department has a good record. Obviously there is a fallacy in this reasoning. By no known method can losses be turned into profits, and granting that it is sound policy that "the railways should pay their way, a principle tihat Mr. McVilly does motj challenge, it is embarking upon a dangerous course for the General Manager to attempt to persuade himself, or the taxpayers, into the belief that a deficit of £1,021,156 is a contribution to a profit of £72,000 a year. On his own figures, the actual facts are that in the six years from 1914 to 1920 the railways earned in excess of the policy rate of. interest £1,725,141. For the period from 1920 to 1923, including the present forecast, there will bo a deficit of £2,083,622. Thus it is not necessary to look further ahead than the present year to see where the present methods are leading. Apart from the elementary unsoundness of the conclusions to which it leads, Mr. McVilly's analysis is based upon a partial view of the facta. He has counted to the credit of the department the whole sum of net earnings for the war period, whereas they included the yield from: additional charges imposed as war taxation. There is no doubt of their special character. The-first increase was made in September, 1915, and in his Statement of that year the Minister for Railways specifically excluded .from bis esti- ■ mates " the extra percentages levied for war purposes.'* In the following Statement the Minister said the revenue from these * war imposts " was. estimated at £200,000 for the six months they had been in force. If allowance were made for the full proceeds of the . original and subsequent taxation charges c'ollected through the railways, very little would be left- of the net profit of £579,610 which _Mr. McVilly claims fds* the period "of eight • years. It may, however, be objected that in this respect the department is simply following the example of the general administration in, allowing domestic expenditure to absorb the proceeds of war taxation. But a more serious defect in the examination of net results is that no discrimination is made between the North and the South Island systems, and unless they are separately in-, vestigated the department will never discover the solution of its difficulties. Taking the last eight years, it will be found that the North Island railways ,have earned about £2,500,000 above interest charges, while the South Island system has involved a loss of £1,900,000. On the .one hand the North Island has earned a net surplus in every year but the last, while the South Island has shown a deficit in every year but 1916-17, and in the last year did not even pay working expenses. v It is, perhaps, not wholly just to the General Manager to attribute to him alone the responsibility for tho T insolvency of the railways. Setting aside war conditions, there are still factors prejudicial to the efficiency of the service as a business enterprise that should be independent of subsidies from taxation. They range from the fixing of an arbitrary rate of earnings through sectional concessions to political interference with the time-table. Even on the most favourable computation subsidies amounting to £1,250,000 have been' drawn from taxation in the last 26 years to defray the interest charges, while the subsidy required last year to supply the policy rate was £1,021,000, and for the current year it will be £938,000. These are alarming figures, to which the Government and Parliament should give serious attention. They are not to be extinguished by cheerful confidence in the recovery from war-time disturbance, for they are the result chiefly of unsound methods throughout the whole history of the system. Mr. McVilly mentions that exceptionally low rates have been allowed in certain cases to assist industries that are now in a flourishing condition. Have such concessions been withdrawn? He complains that the railways carry road-making materials at cheap rates, for local authorities that build roads for motor transport to compete with the railways, that cheap fares are allowed to school children to popularise the education policy. No doubt the catalogue

might bo indefinitely extended until the cost of these indirect subsidies at the expense of the railways would reach an enormous total. The method is entirely, wrong. If it is the policy of the Government to give concessions here and subsidies there, the Railways Department should recover the full cost from the departments concerned, and the latter should be required to present the bil's to Parliament for payment. That is probably the view underlying Mr. McVilly's reference to these /matters, and carried to its logical conclusion, it involves the separate identity of the railways accounts, as of the electricity undertakings, so that the department will be required to contribute to the Consolidated Fund the actual sum annually required to pay interest on its debt. On the other hand, the department would reasonably claim the right to retain surplus earnings from prosperous years -as a reserve against periods of depression and as a fund out of which concessions in fares and freights might be made. But while the department has to bear the cost of innumerable subsidies, is compelled to bow to political influence, and apparently cannot apply the obvious remedy when it is involved in prohibitive labour costs, as by the introduction of the 44 hours week, the responsibility for its failure falls chiefly on the Government that maintains a system proved to be unsound before the war, during the war, and after the war. The problem must be attacked, for the country cannot afford to pay nearly seven millions a year for the services provided by the railways and another million for bad management.