SUBSIDY ON RAILWAYS.

New Zealand Herald, Volume LXIII, Issue 19311, 26 April 1926, Page 10

SUBSIDY ON RAILWAYS.

DEFENCE BY DEPARTMENT. SCRAPPING THE ONLY REMEDY "A POLITICAL IMPOSSIBILITY." METHOD OF CALCULATING LOSSES [BY TELEGRAPH.—OWN CORRESPONDENT. ] WELLINGTON. Saturday. A reply to relent criticism regarding the provision, by amendment of the Government Railways Act last session and !>v regulations, for tho payment of a subSidy to cover losses on unprofitable railways lias been furnished by the Kailwavs Department. It states that the subsidy is worked out on definite lines of accountancy, checked by the Treasury. It is a .subsidy to cover ascertained losses on certain uncommercial lines specified in the regulations. 11 is not—as has been suggested—merely a cheque drawn on the Consolidated Fund by the railways accountant to make good such sum as he finds himself short of. Mr. Coatcs' reorganisation of railway finance, says the department, is based on the principle that (1) isolated lines and branch lines which have no hope of becoming self-supporting (and which, in most crises, were minus such hope from their birth) should be a charge on tho Consolidated Fund, which should pay to the railways an annual subsidy equal to the ascertained losses on such lines; (2) that the rest of the railway service, having a reasonable prospect of paying its way, should be asked to do so and to that end should meet its own working expenses, provide reserves (for renewals, depreciation and insurance), pay its own superannuation levies and pay a higher rate of interest. Political and Economic Aspects. Some peoplo argue that the railways should be asked to earn enough or to economise enough to make the whole service main lines, branch lines, isolated sections and all self-sup-porting. The Department of Railways says that this cannot- be done. It cannot be done by economies, because the branch line statistics published in the Railways Statement of 1925 show that, even after estimating the credit to be allowed to branch lines for all traffic contributed by them to the main lines, it would have been necessary to effect a reduction of 57 per cent, in operating expenses before the I branches would .pay their way. The department says that if it is not relieved by the Consolidated Fund of the branch line losses, it cannot put itself "on a commercial basis" save by the drastic process of closing the branch lines. That course is not only politically impossible, but would be economically bad for the country, because heavy haulage and long haulage of goods is not a burden that the road motor is prepared to take up. To retain the use of the non-paying "developmental" lines,, they must be put on a subsidy basis if the general railways a;e to,bc put on a commercial basis. That ' principle is confirmed by Sir Henry ThornJ ton. head of the Canadian National Rail- | ways. Pull Credit for Earnings. To argtie the general principle any | further would be to beat the air. Criti- ! cism, if it is to throw further light on the problem, will need to be specific. A critic would be scoring points if he could show that the assessment of the losses on tho branch lines on which the subsidy |is based is unfair. In other words, the I immediate issue is mainly a question of ! accounting. In estimating the expendi- | ture, the revenue and the loss on a | branch line, the procedure has been care- ' fully laid down. It is obvious that the | branch line should receive all the credit i directly or indirectly due to the work it i does. Suppose, for argument s sake, that | the branch is 40 miles long. All revenue on [traffic that does not travel on the main I line belongs unquestionably to the branch, i In the case of traffic that originates in | the branch and has a destination somej where along the main line, the branch gets tho whole of the revenue on its own running and the nc.t revenue on tho main line running, that is to say, the main line is paid only its bare costs and tho branch receives all the profit. In the reverse case, on traffic that originates on the main line and lias a destination somewhere along the branch, the branch again receives all the revenue on its own running ' and tho net revenue on tho main line. Even of goods run 100 miles on the main line and only three miles on the branch, the latter still receives the revenue on the three miles and the net revenue on the 100 miles. The above, is what the Prime Minister meant when lie said recently that "under the terms of the, regulations governing the. assessment of revenue on J branch lines, the whole of the net revenue | derived oft main lines from traffic to or from non-paying branches is credited to the branches." Satisfying the Treasury. The. Department of Railways is prepared (o meet any criticism of its method of estimating the losses (and therefore the subsidy), either from the credit or the j debit side* (that is allocation of expenditure). Any criticism from the outside is hardly likely to be keener than the ! criticism' from within, because the Treai surv has to be satisfied with every item. ! As'was pointed out recently, the subsidy j can certainly not be less than six figures j and the Treasury will not see such an | amount go out of the Consolidated Fund | unless it is sure that the losses which I the subsidy makes good havo been fully and fairly incurred.