The Southland Times WEDNESDAY, MAY 4, 1938. The Railways And The Taxpayer

Southland Times, Issue 23499, 4 May 1938, Page 4

The Southland Times WEDNESDAY, MAY 4, 1938. The Railways And The Taxpayer

In his statement on railway finance for the year ended March 31, printed yesterday, the Minister of Railways once again made a claim for what amounts to an exemption, for his department, from the vital necessities of business administration. “I wish to reiterate,” said Mr Sullivan, “that a State transportation system cannot be judged purely from its financial figures. The Government’s policy is that the railways should be administered not necessarily as a profit-making institution but as a public department of State, giving direct value to the community in social service and betterment.” This is true — up to a point. But the social value of a transport system, like every other system controlled by the State, must be measured in relation to the costs of maintaining it with due efficiency. As soon as these costs begin to soar beyond a certain limit they become a drain on public funds, and imply a lessening “social service” in other directions. If this fact is kept in mind, the figures published by Mr Sullivan reveal an alarming position. The net revenue for the last financial year was £632,797, or £271,061 less than for the previous year; and the difference in the two periods, which exists in spite of an increase of £843,535 in the gross revenue, is the result of higher wages bills, a shorter working week, and higher commodity costs. If the net revenue represented a profit on the year’s operations the figures would be satisfactory enough, although .the tendency for increasing costs to overtake the net earnings would be viewed with alarm in a private business undertaking. But the year’s earnings of £632,797 are swallowed by interest charges on a capital investment of at least £61,000,000, and they are a long way from meeting the full amount of these charges. Last year the interest bill was £2,309,754, and the amount contributed towards this sum from railway revenue was £903,858. New construction jobs—mostly of doubtful economic value—are increasing the aggregate capital cost of the railways, so that the interest bill is steadily rising; but this year the contribution from the railways accounts will be only £ 632,797. Assuming that the capital cost now amounts to £61,000,000 (probably an under-estimate), this payment makes the net earnings 1.04 per cent, on the capital investment. The following table, which sets out the net revenue in each of the last 11 years, shows the position in its true significance:

It will be noticed that the figure for the last financial year is below the figure for 1931, in the depth of the depression. In 1931, however, the contribution towards interest charges was 1.16 per cent, of the capital cost. If this is compared with 1.04 per cent, for 1938 it will be seen at once how costly the Government’s policy is likely to become in its application to railways. But the comparison with 1931 implies unequal conditions. To gain a proper perspective it is necessary to go back to the year ended March 31, 1929, which is generally admitted to be comparable in prosperity with the last financial year. At that time, too, the 1931 wage levels, to which railway employees have since returned, were intact. In 1928-29 the net revenue represented 3.45 per cent, of the capital cost; nine years later, in what is claimed to be a year of even greater prosperity, the contribution to interest charges is 1.04 per cent, and the amount of net revenue has fallen to onethird of the 1928-29 figure. For the financial year 1928-29 the gross revenue was £8,747,975, so that Mr Sullivan’s claim that the current amount —£8,634,186 —is “the greatest amount earned by the railways in any year” receives no support from the YearBook. Even if the previous record had been eclipsed, however, the true basis for comparison is in the percentages of annual net revenue to capital costs. Enough has been written to show that railway finances are in anything but a healthy condition. In a year of undoubted prosperity, with gross revenue approaching record figures, the railways will take more than ever before from the Consolidated Fund. The prospect for future years is not bright. New and unnecessary lines will increase the capital costs; commodity costs and running expenses are unlikely to decrease, and may go higher; and there is no certainty that the gross earnings will continue their upward trend. As an example of socialist finance the railways statement is not encour-

aging. And this is the Government, it should be remembered, which is busily liquidating the road services, thus increasing the scope of its transport activities and bringing a new tradition of mismanagement to what have been fields of profitable enterprise. The future seems to hold difficult tasks for those whose duty it will be to straighten out the tangle. »

Year ended Net revenue March 31. £ 1928 1,839,415 1929 1,898,592 1930 929,257 1931 688,727 1932 837,993 1933 850,544 1934 1,085,558 1935 1,087,491 1936 1,051,477 1937 903,858 1938 632,797