THE POLITICAL OUTLOOK

Otago Daily Times, Issue 15098, 22 March 1911, Page 2

THE POLITICAL OUTLOOK

IS if SATISFACTORY?

IX.—LOAN FINANCE: SOUND OR OTHERWISE.

By Democrat.

It used to be claimed that economy in expenditure was one of the strong points of the Liberal Administration. But, on the rule, of contrarieties, that which was regarded as a virtue would now appear to be a vice. Wo have had a surfeit of loan expenditure during the last 20 years, and, as a residt, have more than doubled our public indebtedness. The net indebtedness of the General Government has increased from £37,343,308 in 1891 to £71,778,580 in 1910, to which have to be added the loans of last year, totalling close upon six and three-quarter millions. Provided the moneys borrowed were wisely, and profitably expended, there would be nothing to complain of; but there is grave reason to apprehend that there has been much of waste in connection with our public works expenditure, and, if that is so, a serious injury has been done to the people who are called upon to make good the deficiencies caused by unremunerative expenditure. Moneys borrowed on the strength of the national credit should be expended wisely and well if tho chief purposes aimed at in

such expenditure are to be secured. And these are, or; should be, the development of our national resources and the opening up of lands for settlement. With

much that has been done in both directions, there is hearty agreement amongst men of all shades of political opinion.

Concerning the methods adopted, and the system of financing our loan expenditure, opinions vary. On the one hand there is warm approval; on the other there is more than a suspicion that, in the construction of railways and- other public works, the methods pursued are at once wasteful and ruinously extravagant. It becomes our purpose, therefore, to examine and analyse, as carefully and as dispassionately as possible, the claims made by the Government, that its policy is not only economically sound, but that it is the best possible for the country. Having ascertained that, we shall then be in a position, to say how far the charges of extravagance and unsound finance, so frequently levelled against the Liberal Government, are justified. . LOAN EXPENDITURE.

So many services are charged to loan account nowadays ■ that ■ the. issues are apt to become a trifle confusing unless the position is clearly understood at the start. For instance, in the. public works expenditure for tho financial year ended March .31, 1910, we fold charges in respect of railways, roads, public buildings, telegraph extensions, contingent defence, tourist and health resorts, immigra-' tion, purchase of Native lands, departmental expenses, development of goldfields, lighthouses, harbour works, harbour defences, lands improvement, charges and expenses : of raising loans and renewals, etc., these several items totalling £2,216,397 2s Bd. Then we have a sum/of £534,935, charged in respect of debentures, either redeemed or renewed. Further sums are charged as interest, and for surveys and roading on the Cheviot Estate. The Land for Settlements account absorbs another £2,403,417, and other items, in' respect of Maori land settlements, bans to local bodies, the Hauraki plains settlement, and the scenery preservation account, make up a total ' expenditure 'for the year of £5,478,328. Unquestionably a good deal of this is revenue-producing, and may, therefore, be regarded as remunerative expenditure. But, just as certainly there are other items included in the payments that cannot be regarded in-any other light than non-productive; and, in so far as they are met out of borrowed capital, they entail interest charges which," unless'met out of sinking funds, must be regarded as a dead loss to the community.when, as is inevitable, they become non-efficient and have to be renewed. In this category may be included the following payments in respect of the services mentioned:—

Roads , £367,230 9 11 Public buildings ... 277,156 12 1 Contingent defence ... 4,977 0 3 Tourist and health resorts 14.507 10 0 Departmental ... 41,175 14 3 Immigration ... 17,002 810 Lighfchous«6, harbours, etc. ... 16,682 13 1 Development of goldfields ... ... ... 18,597 14 3 Charges and expenses of raisng loans ... 18,362 5 5

Total • £775,692 9 1 lii addition to these sums there were payments on account of:—

Railways, totalling... £1,240,451 11 8 Telegraphs 39,355 0 4 Lands improvements 6,903 13 7 Wellington - Maaiawatu, pui'cliaee. ... 39,355 0 4 all of thcee payments being more or less interest-bearing. CONTRIBUTIONS' FROM THE CON-

SOLIDATED REVENUE,

In discussing the 6olvency, or otherwise, of investments made on loan account it. is necessary to take into consideration the payments made from the consolidated revenue into the Public Works Fund. These, of course;, are noninterest bearing,''and may, therefore, be reasonably credited against non-interest bearing expenditure, Mich as that detailed in the first table. But as no such payment was made last year it follows that the whole of the £775,692 exponded had to be met out of loan moneys, It is necessary, therefore, to provide the interest upon that amount. The loan moneys actually paid into the Public Works Fund up to the 31st March, 1910, amounted to £43.042,202 7s lid,, and in addition some £7,230,000 has been trans-. ferret! from the Consolidated Fund to the Public Works Fund during the last 20 years. The expenditure upon roads alone would, however, more than absorb that .amount, and if to tho £8,669,778 3s 9d expended in that direction we add the £2,218,793 16s spent upon immigration, tho £837,113 7s Id spent on the development of the goldfields, to say nothing of the six or seven miUions spent' in other noninterest bearing directions, it will be seen that the Public Works Fund is loaded ■ft-ith expenditures that must all fall upon the taxpayer. He has, of course, been contributing to the fund all along, and in certain quarters the idea has gained currency that the contributions from the Consolidated Revenue have, more than, made up for the deficiencies arising out of the non-interest or non-revenue bearing expenditure. As. a- matter of fact, however, out of the total expenditure of £50,944,816 from the Public Works Fund, not more than £30,142,180 can be regarded as directly productive and interest-bear-ing. Of the twenty and a-halt millions remaining, aftav deducting the seven and a-quarter millions paid over from tho Consolidated Revenue, tho public is paying interest on £13,250,000, without see:ng any return for the money spent, except in the .extra public conveniences secured in, the shape of roads, public buildings, etc. At 3A per cent, this represents a sum of £397,500 annually payable by tho taxpayers of this country in the shape of interest upon 'unproductive wdrks. And if to this be added tho contributions from the Consolidated Revenue, which lor the years 1906-7, 1907-8, and 1908-9 amounted to £775,000, £800,000, and £800,000 respectively, it will be found that the public arc contributing- at least one million per annum to the Public Works Fund of the Dominion. The taxpayer has, therefore, a direct interest in aecertainng whether that fund is beiaig administered judiciously and wall. It is only out of his pocket that the Public Works Fund can be maintained in a solvent condition; he has to make good all deficiencies, as already pointed out. And straight away an ex-

pHanation would appear to be wanting in respect of such p:iymcnte as the £68,671 changed in regard t> "rates on Native lands.". It is also of interest to note that the " charges and expenses of raising loans" amount to £1,241,932 2s 3d, which works out at approximately 3 per cent, upon the £43,042,202 of loan moneys absorbed by the Public Works Fund.

THE EXPENDITURE UPON RAILWAYS.

An analysis of the public works expenditure ehowß that the largest item of expenditure is in regard to railways, The total to March 31, 1910, including surveys of now lines, was £26,457,577 (the figures aro quoted from the official statistics for IUO9, page 485), the cost o.f open lines being stated in another tai>:e (page 480) at ±128,513,476, while in a subsequent tablo the cost of all railways in the Dominion lor which the Government is reBponaible is given (pago 3 481-2) at i/ 29,918,488. Juat which of these represents tha correct amount expended by the Stato it is impossible to say. But the point to bo emphasised is thie : The railwaya of this country aro overcapitalised. In other words, they have cost a great deal more than they should. The Continuous liberal Administration is directly responsible for this. By the introduction of the costly and essentially extravagant co-operative works system it has increased the cost of construction by from 33 to 50 pea , cent. It follows, therefore, that a greater amount of capital is expended than is either necessary for the running of, the lines or remunerative from the interestbearing standpoint. That this is so may be seen uy a- reference to the average" cost of railway construction in Queensland, the circumstances of which are almost identical with those of this country, the gauge of line being the same practically, and many of the lines involving just as great difficulties from the engineering standpoint as our own. The 5444 miles of railway open in Queensland on the 30th of June, 1909, cost £>!3,395,322, or £6792 per mile. The 2704 miles of railway open in this country on, the 31et March. 1910 (vide table on page 320 of the Official Year Book of the same year), cost £28,513,476, or £10,544 per- mile. As a matter of fact, however, there is reason to believe that the actual cost ,of the railways in operation is understated. There are two tables, as already stated, in the official statistics giving the cost of the New Zealand Government railways, one of which is more detailed than the other. A reference to the latter shows that (he total expenditure by the General Government upon the Government lines to March 31, 1910,. was £26,717,095, a further sum of £1,413,651 being expended upon the purchase of district lines. Other lines taken over by the General Government, and constructed by the provinces and the Midland Raiilway Company, valued at another £1,787,741, do not seem to- have been taken into the calculated cost of the railways, and if this is the case the mileage cost is further increased to about £11,204 male. If we may judge from the Australian experience, we are payine much too dearly for our railways, and, that being the case, it is evident our loan expenditure might be conducted on more remunerative linos.

WHAT OVER-CAPITALISATION MEANS.

Over-capitalisation in any business spells disaster in the Jong run, for the very simple and all-sufficient reason that its capacity to earn more than a gaven rate o{ interest is limited to the work handled or accomplished. If, therefore, a plant, or equipment, capable of returning remunerative, interest upon ~£IOOO only, costs £1300 or £1500, it follows that the business it takes in hand mus| be accomplished either at an actual loss or else at increased charges to its customers, and in neither case can the result be regarded as satisfactory. That L- practically the position in regard to our railways. Paying at least 33 per cent, more for the cost of construction than the railways are worth we get an over-capitalisation on construction account, which necessitates the earning of more interest than can bo properly obtained, and a subsequent writing down of capital or, in the alternative; the payment by the principals in the tyisiness—in this case the-people of New. Zealand—of the loss incurred. The capital expenditure upon our railways out of loan moneys last year was .-61,240,241. Assuming that w-e are paying a third more for our railways than we should, we really paid £310,060 more than we should, and to that 'extent saddled our loan expenditure with unienuurerative business. That point conceded, it must be further admitted that, despite the large payments out of the consolidated revenueall provided by taxation,—we are saddling our loan accounts with an amount of unprofitable business that must 'necessitate additional taxation in the near future. A further consideration is the amount paid for our loan accommodation. It has already been shown that the,, loan moneys appropriated to public works purposes cost 3 per cent, to raise, that amount being expended in charges, expenses, and commissions, etc., quite apart from the interest payable. And although the full particulars of the last £5,C00,000 loan are still wanting, sufficient information is'.forthcoming to shew that the cost of raising that loan is fully 7, if not 8, per cent, of the amount, lie policy of, the Government has been Erected towards the employment of loan moneys in so many directions ihat it is becoming a, matter of very serious concern to the.taxpayer who has to make good the deficiencies. So long as the moneys at the disposal of the Government are profitably invested and the expense of flotation, etc., is fully covered, we need not trouble very much how they are employed. But the Liberal Government has added over £40.000,000 to our public indebtedness during the last 20 years, and flhere is evident need for caution. But further consideration of this aspect of tho business must be held over.