RAILWAY FINANCE.

New Zealand Herald, Volume LXVI, Issue 20387, 16 October 1929, Page 15

RAILWAY FINANCE.

ALTERNATIVE POLICIES.

EARNING CAPACITY ASPECT.

MR. DOWNIE STEWART'S REVIEW.

[BY TELEGRAPH.—SPECIAL REPORTER.] WELLINGTON, Tuesday.

The possiblo lines of railway policy wero succintly reviewed by tho Hon. W. Downio Stewart (Reform —Dunodin West) when speaking on tho Railways Statement in tho Houso this evening. Noxt to unemployment, Mr. Stewart regarded tho railways policy as tho most baffling and difficult problem bofore New Zealand today. In Mr. Stewart's view three possiblo policies could be pursued. Tho first was to rogard tho railways from tho social usefulness point of viow and to disregard tho balancing of tlio Budget or tho payment of full interest on the cost of construction. With that view Mr. Stewart did not agree. Tho second possiblo policy was to say tho railways should earn full interest on tlio cost of loans. That was no doubt the ideal from tho business point of view. Tho third possiblo policy was an intermediate one, namely, that tho Government should say it proposed to try to make the railways earn a fixed rate of interest, but to make allowance for tho fact that some social return was made in the development of back-block lands or in the cheap carriage of people from congested areas to the suburbs, viewing the matter from a health point of viow. Policies of the Past. All three policies had at sonm time or other beon tried in New Zealand, said Mr. Stowart, in correcting an assertion by the Minister of Transport, tho Hon. W. A. Veitch, that New Zealand had all along oporated its railways on tho do-' velopmental principle. The Minister of Railways, the Hon. W. B. Taverner, had emphasised tho same point in his statement. Those who cared to look back into the history of the Now Zealand Railways would find that when the present Prime Minister, Sir Joseph Ward, was Minister of Railways, ho laid it down as a principle that he intended to make tlio railways earn 3 per cent, to meet interest on loans used for constructing railways, and he would return all revenue over and abovo that to tho public in reductions in freights and fares. It was true that the railways had not then to bo worked on a commercial basis, and proper provision for depreciation was not made. When the Hon. J. A. Millar became Minister of Railways about 1909 lie laid it down that the railways must earn their own interest, and ho did succeed in making tho railways earn 3;{ per cent. During tho war, when tho trains wero used extensively for the carriage of troops, the railways managed to pay 4 per cent., 5 per cent, and even higher, but in recent years the aim had been to pay 4 1-8 per cent. " No Definite Ideas."

It would bo seen, then, that at most periods railway finance had been based on the theory that it was permissible to have a gap between tho net returns from the railways and the amount paid in interest on loan moneys, the main effort being to see that tho gap did not become no big as to give cause for alarm. The Minister, in his statement, had emphasised almost entirely the developmental side of the railways. Mr. Stewart said ho did not blame the Minister for having difficulty in arriving at what tho policy should be, as it was evident from the speeches of members of the Cabinet, and especially from the speeches of tho Trime Minister, that tho Government had in mind no definite ideas as to what tho policy should be. During the election campaign tho Trime Minister had stated that the projected new railways would not cost the taxpayers a penny. If that were the Prime Minister's view it must havo meant the railways should pay tho full rate of interest. Unless tho Government had a clear policy as to what it expected the railways to earn, Mr. Stewart did not see how it could dccido what new lines should be built, for railways could not be built on one principle and operated on another. Determination of Efficiency. The efforts of the general manager were directcTlo running tho railways on a commercial basis, and he was quite right from his point of view, but the general manager could not control policy. If tho developmental standard were to bo the only standard then tho taxpayer had no protection, for tho most expensive schemes could be entered into. On the other hand, Mr. Stewart did not think tho railways should have to pay the full rate of interest, particularly in the present period of difficulties resulting from the motor competition, but he submitted that it was reasonable that some standard should bo set, otherwise there would be no testing standard as to the efficiency of the railways. Financial authorities at Home had recently been asking what New Zealand's policy was in regard to railways, and a writer in a financial journal had said that if financiers at Home formed tho impression that their monoy was being sunk in unproductive schemes the interest rate would inevitably harden The House and the country were entitled to know what tho Government thought the working railways should earn and what part of the loan interest should bo paid on tho capital cost of tho construction of new lines.