THE POLITICAL OUTLOOK

Otago Daily Times, Issue 15101, 25 March 1911, Page 5

THE POLITICAL OUTLOOK

IS IT SATISFACTORY?

X.—FURTHER ASPECTS OF RAILWAY AND LOAN FINANCE.

By "Democrat,"

Twenty years ago the Liberal party, then under the guidance of Mr Ballance, started out on its self-reliant, non-borrow-ing policy. Since then £40,000,030 has been added to the public indebtedness of the country, and 1 , so dependent have wo become upon the money-lender, that Sir Joseph Ward, speaking in Taranaki recently, declared that to stop borrowing would be to bring disaster upon tho country, liberal finance has, therefore, brought us to this pitch: we are compelled to go on borrowing whether it is wise to do so or not. That is the plain English of the position as Sir Joseph Ward understands it. If it could .be shown that tho £40,000,000 added to our national debt had been expended wisely and well, there would be no room for complaint. But we lniow, unfortunately, that there has been a great deal of waste in connection with the expenditure, and that large sums of money have been squandered as a result of the adoption of the co-operative works system in the building of our railways, etc. This may be seen by tho following comparison between the various Australasian railways,the cost per mile being worked out from the latest available returns:—

It will be seen from this table that the cost per mile was only exceeded on tba_ wider gaiuge and more expensively equipped lines in Victoria and New South Wales, which might reasonably be expected to cost -from 50 to 75 per cent, more than our lighter narrow gauge and less expensively equipped lines. But an even more significant comparison can be instituted l between the cost of railway construction at varying periods in the history of the colony—a comparison that throws into strong relief the costly naturo of the co-operative works system. The official figures covering the 33-year period from 1877 to 1910, given in the " Statistics of New Zealand " (page 483), show that in 1881—tlm capital expenditure upon the railways is not available until that year— thero were 1287 miles of working railways being operated, and unon these the capital expenditure was £9,228.334, an average of £7170 per mile. In 1891' the mileage had increased to 1842 and the capital cost to £14,278,586. The additional 555 utiles had therefore ocst £5,050.252, or £9095 per mile. On March 31, 1910, there were 2717 miles of Government railways working, the capital expenditure being £23,513,476, representing an average cost of £10,494 per mile. Between 1891 and 1910 the Continuous Liberal Administration constructed 875 miles of railway at a cost of £14,234,870, or £16,290 per mile. A further analysis of the figures (the calculations being made on precisely similar lines) gives us. the following as the cost of railway construction per mile under the Governments noted:—

COST. A feature of Liberal finance is the extraordinary growth of the short-dated loan, leu yeans ago we raised the greater portion of our loan moneys in London. We still go to the world's metropolis for our bigger loans, as witness the £5,000 000 loan of' last year; but, the Minister of JJinance has developed a. surprising aptitude for mopping up moneys wherever lie can lay tends upon them, be it in Australia, Xew Zealand, or elsewhere. I nils wo have the short-dated loans, the inconvenience of which may yet make iteelf unpleasantly felt in the not far distant future. Of loans falling due this year to the amount of £1.432,443 not one was obtained before 1901, and the in™ th ®, mo ? 6 y ™ secured as .recently a* mob, the lour-year period being apparently favoured by the Minister of Finanoe. Next year (that is. in 1912) the treasury will have to find the nice little sum of £6,426,195, that being the sum total of moneys failing duo between January 1 and December 31. And, with the exception of one sum of £194 200 ZTt\ ,2ft , " Tlle Consolidated Stock Act, 1884, the whole of this monev I ■haa been obtained since 1901, and by far 1 the larger amount since 1906. Just what these short-dated loans cost the country j i is hard to say, as fresh loans must be incurred to take their place In analysing the Public Works Fnnd moneys in the last article, it was shown tliat tin forty-three millions raised by loan had cost £1,241/®! in charges aJd e^ d Account was not then taker, of the fact tha., of this sum, over nine millions was S. ! ne L J, om 1,10 Poat offiM Saving Bank (£9,631,707 out of the £12,301 772 held », securities by the Postmastergeneral, consisting of Government bands in respect of public worlis loans), and, if that amount be deducted from the total it will be sea; that the cost of the ualanco is materially increased. ] n>stea.d of costing 3 per cent., the charges ana expenses -would be nearly 4 per cent, on the £53,410,515 raised outside the Pest Office. There ,j s nothing very inspiring about this sort of finance, and tho.mutli-tud-1 that acclaims the Prime Minister as a financial genius of tho first magnitude would do well to look moro closely into the business before further committin" themselves to a form of finance that savours so strongly of recklessness. The short-dated loan is not only expensive, but it may bocome very embarrassing in times of financial pressure; 'Apart from the loin, a portion of which may possibly be redeemable within the same period, the Minister of I'inanco has to provide £12,029.717 vitlnn tho nest live years. Tho a l. TJVS^ 1 , bv " a to the Pubbc Debt table in the volume of Statistics for 1909, pages 475-7. in whirh the several amounts and t!icir clue rtstos are set forth in detail. How much of this is due to the mistaken nct'on t\it investors who take up short dat'd Ws aie pupaied to convert their securiti s into inscribed stock it is iniparaibk to say. No doubt a very considerable amount was expected to be f0 converted wihen tho loans were offered, as thepHicv or idea is perpetuated in the five nrTio'n loan of last year. Terms that may be described as extravagantly liler.il "were offered to the investing public lo induce them first to take up the ehort-d-te l debentures. and then to convert them in!o inscribed stock, the loan :'n the ht.-r case being practically obtained at 7 rr 8 per ornt. discount, and a (o-«ujucnt increase in the interoit payable; a.lthouih. nominally, it remained at the rate quoted in the prospectus. UNSATISFACTORY RAILWAY

FINANCE.

In respect of our national debt. t!:o railways form one of our principal asjels. It is essential, therefore, lhat they should be maintained on a. sound financial footing. That they are so maintained is very much open to question. While there is a very great improvement noticeib'e in the transactions for 1909-10, and it is claimed that the percentage of profit to capital Invested is 3.80 per cent., it is

evident that the true position 'is not disclosed. The "net profit" upjn tho working of the lines is given by the Minister ;<s £1,0E0,316. lint beloro " procan be properly estimated, it is only business-like to chargo against the revenuo the interest payable on the capital invested. That interest has to be provided either by the railways or (lie taxpayer. We have over £20,000,000 invested in open and nnopen railways, the capital cost of the open Ms being stated at £28,513,476. The interest payable cn that sum alone would more than absorb the "profit" made last year. And then it is impcssible to find either in the Railway Statement or c'ecwhero that provision is niEde lor depreciation of plant and buikbnes, or that eny sort of a jinking fund exists to reduce, even by one 6d, the capital indebtedness of the railways. Any private firm carrying on business on similarly improvident lines would speedily co.r.c to .grief, and its principals would lay themselves open to chargcs of criminal jicgloct in the conduct of their business. The State insists on curtain safeguards being observed in such eases. And euxely it has no right to disregard in the conduct oi its own affairs the businecs safe-, guards it insists upon commercial men observing. The railway statement shows that the moneys locked up in the department and in construction works aggregates £30,321,191. Interest cn that, at the rat2 of 4 per cent.' (some of the money was borrowed at 41, and even 5 per ccnt.), amounis to £1,212,844, and that sum lias be found before the railways can bo said to be beginning to pay. As the estimated pjofit last year was only £1,080,5x6 it fellows that there was an actual loss of £132,528 in the interest chargeable against the consolidated revenue for the expenditure upon railways. The matter does not, however, end here. CHANGED TO CAPITAL ACCOUNT.

Other factors have operated to swell unduly the so-called "profits" of the Railway Department. Works properly chargeable against revenue are still bring charged to cipital account. Under tho vote for "additions to op:n lines" charged to capital account lrst year, a sum of £318,0£0 was expmdcd upon the railways, the greater portion of which was properly 6pcaking a charge against revenue. The items covered by 6uch expenditure include additions to station buildings, platforms and dwellings, water services for the locomct ; ve department, fcncing, gas and electric lighting, signals and interlocking apparatus, loading banks, stockyards, approaches and crossings, etc., and even such perishable things as ta,rpaulins. Charges of this character are, speaking generally, defrayed on other systems out of revenue, and are regarded in the light of maintenance charges. That tliis is case, and that, on the part of the Minister of Railways at least, there is a recognition of the principle that such matters should not be chargcd to loan account, is apparent by the remarks recently made by Mr Millar. In speaking of certain re-grading works that are being caiTicd out at Tuakau, Mr Millar emphasised the fact that they wero being pa:d for out of revenue, which was a practical admission of the fact that similar works had been wrongly charged to capital account. Prior to 1891 all such works had been charged to revenue, but in that! year the Railway Commissionais, in their anxiety to make the railways pay, obtained special votes l'rcm Parliament for improvements and additions to open lines. They begin in a very small way, their first vote amounting only lo £12,928, and the votes they received in this respect r.ever reached anything like the dimrsions they have since attained. In 1895 tho Minmissioneis wore retired, the r.on-poli-tical regime ended, and tho Government assumed direct control of the lallways. During ths two years that fol'owed the votes for " additions to open lines " were suspended, but in 1697 they were again commenced, and since 1897 the expenditure in this direction lias amounted to £4.493.093. or an average for the 14 years of £320,925 per annum. These facts and figures go far towards showing that the railway " profits " are purely paper profits. The following table shows tho amounts voted during the last five years under tho "additions to open lines" heading :—

Amount voted Year. for additions to open lines. 1906 ...£351,043 1907 „. 308,898 1908 ... .„ 333,386 1909 ... 398,096 . 1910 318,091 This represents an average of £341,502 per annum, which is greater'th?n that of tho 14-year period, although the latter includes votes of £777,939 in ISO2 and £423,167 in I£o3. The comparison certainly does not rdd to tho financial reputation of the Government.

dsf

ds