LOSS ON THE RAILWAYS.

New Zealand Herald, Volume LXVI, Issue 20323, 2 August 1929, Page 15

LOSS ON THE RAILWAYS.

DRASTIC PEOPOSALS.

REDUCTION OF CAPITAL.

WRITING OFF .£8,100,000.

SUBSIDY TO BE STOPPED

[ny TELEGRAPH. —SPECIAL IVEPOItTER. 1 WELLINGTON. Thursday.

Proposals in regard to the financial position of tlio Railways Department were announced by the Prime Minister, Sir Joseph Ward, in tlio Financial Statement. Briefly, they are the writing down of the capital liability by about £8,100,000, the discontinuance of the subsidy on branch lines and isolated sections and, reference to tho Transport Advisory Council of the question of continuing branch line services.

Sir Joseph said transport provided one of the major problems, if not tho foremost problem, facing the Dominion. Tho net railway revenue last year was £1,399,655. Subsidies on branch lines and isolated sections amounted to £498.937, giving a total of £1,898,592 available for interest charges amounting to £2,331,335. 'flie result of the year's working was, therefore, a loss of £432,743 so that the disclosed loss for tho year was approximately £930,000, as against £280,000 for 1925-26, the first year of operations under the present system. The real loss was even greater than indicated by these figures, as there were certain capital charges which the railways had not been asked to carry. Great Loss Forecast. " I am satisfied that if tho present drift is allowed to go on for only a few years longer tho taxpayers of the Dominion will have to find not less than £2,000,000 a year to meet railway deficits," said Sir Joseph. " That is what wo are faced with." The heavy construction costs of the lines added to tho system in recent years, together with tho extensive programme of improvement works authorised by tho previous Governments, and better rollingstock, had together been responsible for raising the averago capital cost per open milo of line from £12,106 in 1920 to £17,210 in 1929. This had meant increased interest charges, especially in view of tho high rates for money that had ruled in recent years, against which net earnings per open milo had gone down in about tho same ratio as the capital cost had gone up, that was, from £551 in 1920 to £353 in 1929. Drop in Passenger Revenue. To illustrate the falling off in railway earnings the Prime Minister made a comparison between railway revenue in 1919-20 and 1928-29. A striking feature of this was that while passenger traffic produced £2,594,440 in 1919-20 the earnings from the same source last year were only £2,502,887. The goods traffic, on the other hand, showed a marked increase. The passenger revenue had declined, notwithstanding that over tho period lines opened for traffic increased by 281 miles, while passenger train-mile-age run increased by about 60 per cent. Ilad tho passenger revenue increased in the samo ratio as the goods revenue all would have been well, added tho Prime Minister. The Prime Minister went on to emphasise that the falling off in tlio passenger traffic was due to the development of motor transport. The irony of tho situation was that tho heavy losses on the publicly-owned railways were being largely brought about by good motor roads being built, also with public money, to facilitate direct competition with the railways. In other words, State capital was being provided to assist in the direct undermining of tho earningpower of £57,500,000 of State capital already invested in railways. Co-ordination of Transport.

"Unless the road motor is to be niado to carry the full cost of the roads so as to force traffic into the, most economical channels (and even this would involve economic waste through unnecessary duplication of services) the main highways policy must be framed as far as possible to bring about not direct competition, but. co-ordination with the railways," continued tho Prime Minister. "The nirumnt of borrowed capital available for reading purposes is not unlimited and roads away from the railways should be the first consideration in the interests of trade and production. This aspect of tho transport question appears to have been largely neglected up to tho present."

The co-ordination of rail and road transport was then discussed by the Primo Minister. Some system of co-ordination was necessary, because the Government desired to encourago mijtor transport as feeders to build railways. In this connection he referred to tho setting up of tho Transport Advisory Council and said it was proposed to broaden the basis of (lie council by giving tho railways adequate representation thereon and by adding representatives of tho commercial and farming interests. The council wotild investigate the problem and report to the Government as to the best means of eliminating wasteful competition and promoting co-ordination between road and rail transport. Position ol Branch lanes. The Primo Minister repeated tho Government's policy to complete' the trunk railways and where transport needs can lie met by motor transport no further branch lines of railway will bo built. At present losses on branch lines and isolated sections are covered by a subsidy from the Consolidated Fund, which last year amounted to approximately £500,000. So mo of these so-called branch lines—the Otago Central line, for instance—must remain as an integral part of the railway system, but some of the short lengths of lino merely lacked on to the main lines had clearly served their purpose from a developmental point of view, and with tho development of motor transport such lines had beconio obsolescent. In such cases any privato concern would probably tear up tho railway lines, and it was a matter for consideration whether the Government should not do likewise. The question would be referred to the Transport Advisory Council. Whero private enterprise had already established adequate motor services no further action by the Government would be necessary, but in other cases it might bo necessary for the Railway Department to run a motor service.

" As to the loss of capital invested in such lines, I have to point out that part of the capital for the Public Works Fund has been provided out of transfers from national revenue, and when an allocation is made it is found that approximately £8,100,000 of the total railway capital has enmo from surplus revenue," continued the Prime Minister. " Thus tho capital sunk in lines that nro dono away with can bo written oil without impairing tho total of asfts representing loan capital. In any casos,hc Government has decided to go further than this and write down the capital of the railways. At the same time the present subsidy out of the Consolidated Fund will bo abolished. Hie present arrangement is unbusinesslike and confusing, and the proper thing to do (assuming it can bo done) if tho assets are not worth their cost from the point of

view of earning-power, is to •write down the capital. That is what any commercial concern would do.

" The capital cost of track and buildings of the branch lines at present covered by the subsidy arrangement is approximately £6,250,000. Thus when the railways have been relieved from payment of interest on £8,100,000 of their capital, not only will there be no interest payable by the railways on account of branch lines, but there will be an additional saving of interest to them to be set off against the working loss on those branch lines which, after investigation, it is decided to retain. Writing off the capital in this way will not involve any additional loss to the Consolidated Fund, as at present the interest received on branch-line capital is handed back to the railways through the subsidy. On the other hand, the Consolidated Fund will riot be relieved of any interest charge through the cancellation of the subsidy. The proposals simply mean that the capital derived from surplus revenue will bo written off, and that will be the end of it so far as interest is concerned."

Tho Prime Minister then summed Up tho Government's policy as follows:—(1) To complete the trunk lines as tho backbone of tho system; (2) not to build any moro short branch lines whero tho transport needs can be adequately catered for by motor services on a good motor road; (3) to investigate the position of tho present branch lines with a view to doing away with those that are found to be obsolescent; (4) to write down the railway capital by the amount contributed thereto from and cancel the present subsidy from the Consolidated Fund; (5) to co-ordinate the railway and motor road construction policies; (6) to take steps to bring about co-ordination between road and rail transport services. " I am satisfied that when the policy that I have outlined is carried out the drift will bo checked, and the operation of the completed trunk railway system of tho Dominion will earn full interest on its capital, and thus will not entail any burden at all on the taxpayers," concluded tho Prime Minister.

PROBLEM OF DEFICIT.

POSSIBLE ECONOMY LIMITED. FACTOR OF "RIGID" CHARGES. COST OF STATE SERVICES. [BY TELEGRAPH. —SPECIAL REPOHTER. 1 WELLINGTON. Thursday. Last year's Budget was reviewed in detail by the Prime Minister at the outset of his financial statement, his observations referring especially to the fact that the result was a deficit of £577,252. The principal cause of this was that revenue from taxation did not fulfil anticipations, while interest charges wero unexpectedly increased by the large debt conversion operation in January. In summarising the relation between revenue and expenditure, the Prime Minister said the year's taxation was £17,836,234, in addition to which the Budget received £5,763,442 from interest earnings and sundry revenues. In order to show the allocation of taxation, he had had the latter amount of revenue deducted from the relative items of expenditure and the net cost set against taxation. The result was as follows, the figures in parentheses indicating the percentages: — War pensions and war debt charges, £5,023,755 (27.2); other debt charges, £2,226,416 (12.1); social services, £6,292,930 (34.2); defence—land, sea and air, £1,043,622 (5.7); justice, law and order, £544,976 (3.0); agriculture, £464,533 (2.5); roads and highways, £1,536,517 (8.3); general and other administration charges, £1,287,917 ( 7.0); total, £18,420,666. Burden ol Public Debt. After discussing these items in detail, Sit Joseph Ward said: —"The existing charges on the taxpayer are largely of a rigid nature, and the scope for administrative economy is very much smaller than is popularly supposed. Every effort will be made to obtain the utmost economy in administration, but I am satisfied, after an examination of the detailed estimates for the current year, that enough cannot bo saved in this way to offset tho automatic increases in such items as interest, pensions, education, etc., let alone make good the deficit for last year. So far as interest is concerned, in addition to the increases arising out of loan expenditure for such purposes as schools, public buildings, and other items that are not interest-earning wholly or in part, we must expect increases from the renewal at higher rales of some of the old loans. For instance, by the time the operations are completed it is calculated that the conversion of the £29,000,000 4 per cent. 1929 Consolidated Stock will increase interest costs by about £220,000 a year. "Thus it is clear that the deficit cannot bo made good by administrative economy, and, as a matter of fact, the only alternative loft is either to reduce the services rendered by the State (and by services I mean not only work done by the departments, but financial assistance given, which is the larger item), or to obtain moro revenue. That is tho position in a nutshell. "The services rendered by the State have been greatly increased over the last decade, and, generally speaking, it would appear that we have reached a stage when it is advisable, as far as possible, to stabilise tiie position for a year or two, to enable the increasing population and wealth of tho Dominion to lighten the relative burden on tho taxpayer. More Taxation Imperative.

"Another important point that should not be overlooked is that the whole trade position of tlio Dominion is largely governed by tlie world prices for our staple exports, over which prices we have 110 control. For this reason our public finances should not bo cut too fine when times are good. To reduce taxation in a prosperous period is easy, but the benefit so derived does not in any way compensate for having to increase it again when times are bad. Further, it is highly desirable that a certain amount of the money for public works should bo provided from revenue, and the surpluses from the exceptional revenue of good years should be utilisod for this purpose. "All will agree on the desirability of keeping rates of taxation as low as possible, but I am not at all suro that the reductions granted in recent years were not greater than wero warranted in view of the progressive increase in expenditure on account of extended services. Anyway, the revenue from taxation last year proved insufficient to provide for the existing services, and the year closed with a deficit of £577.000. That, is tho position which the Government is called upon t,o deal with. "Having onco received all the existing services from the State, the people generally do not want to lose them, so, as it is essential that tho national accounts for the current year should bo balanced, it appears that the Government has no option now but to adjust tho taxation to obtain more revenue. Tho increased rates of taxation will, I hope, only be temporary, as I am sure that when the Government has had time to deal with the seat of the trouble, the .resulting increase in prosperity will be permanently reflected in increased receipts and reductions in the rates of taxation 011 a stable basis will be possible. In the meantimo immediate action is necessary to rectify the position."