Our Railways.

Timaru Herald, Volume XIIC, Issue 13644, 11 July 1908, Page 2 (Supplement)

Our Railways.

THEIR SYSTEM OF FINANCE.

AN AMERICAN CRITICISM

Some months ago tlic Auckland ''Herald'' reproduced from " Moody s- Magazine, a.pupulur American 111011. Illy, an article by Professor Le Rosisignal on die finances of the New Zealand, The writer strongly condemned .-the - Ut®?rnment'B. fin-, ancing'of the system, .contending that the railways were really run at a loss, after: interest lia,d boen provided for.. The 1 Premier replied to his critic in a ve.ry leng liy speech, the major . portion . of'. wjiich was devoted to a trivial omission in Pro 7i fei.sor Le Rossignal's calculations which did hot affect the general argument. Xhte Auckland' "Herald" of Saturday lastprints the Professor's rejoinder.._ Sir \Joseph. Ward, in his criticism of an article. by me in the August issue of '"Moody's Magazine" (the Profeiysor say.s), very 1 -properly calls attention to the fact ■that, when - ! deducted the amount of expenditure for addition to opfcn lines-from ihe nett earnings, I ought to have deducted the same amount from capital, in order to show the true percentage of net earnings arid the true aiftounti of the annual; deficit. The expenditure for additions to open lines for the! ten ing 1906 amounted to £3,122,478,. and, when this amount is deducted froin capital' the capital cost of opened and Unopened, lines appears as, , £21,969,607," instead of £24,092,085, and. the net reyfenue according to my reckoning, should be 1.79 per cent., instead of 1.56 per cent., as I liad it. The difference is not great, amounting to only £55,808 for the year 19,05-6, but I regret that the mistake occurred, for I do not intend- to misrepresent facts, nor Bo I wish to pose as an unfriendly critic'of New Zealand institutions. BORROWING TO; LOSE.

I admit a!so, for I may as well contas all my sins at once, that I took rather extreme' ground in claiming that all expenditure for additions, to open lint's should be charged to revenue, although I think it desirable to do so. - Until recent years it has been "Sthe praotice of the-best American railways to Charge renewals and bettennen's largely, to ■ revenue, and in this! way they have built -up. valuable properties, not too heavily mortgaged,, while the stockholders have foregone dividends for a time in order ithat their stock' .might rise .in value in" prospect of larger " dividends later -on. Henry S. Haines says,, in his ''Restrictive Railway Legislation". :—" In ; Ehglaud the tendency r is 'to - distribute the iiiconie ,'in. dividends up to' the. hilt, 'arid to; provide foi' improvements by issue of additional shares of capital stock, while ill the , United States, ■ improvements are largely . provided for - fi'om net income." No doubt the practice of the Railway Department is'in line with that of many private roads,' but a private company whose property was so heavily mortgaged and whose net earnings were not sufficient: to pay interest on its debts, could not Borrow at all, : and would be obliged to call upon the -blockholders for .contributions to save the company from, bankruptcy.. But the Government, by using its general credit, based upon the prosperity of private citizens, and not upon'the earning power of Governmental undertakings, can borrow to play a losing: game, and - the- ease with: which it can do this is a.source of grave danger to. the community. TO CAPITAL OII'IIEVKNUE.

, Sir Joseph says that Mr. J.Matlusan, late Chief Commissioner of' Victorian Railways, approves of the ' practice of charging improvements to; capital, but lie does not'say that Mr. Thomas Tait, the present Chief Commissioner, approves of it. On the contrary, one would infer from the report lor 1906 that the Victorian Commissioners are m favour of discontinuing- the policy, os soon as passible.. They show ,a surplus of £198,964-for <he year 1905-1906, and strongly recommend that it be devoted to the following purposes:— r " Filst —To the liquidation of liabilities •chargeable' to- -revenue, thus eliminating from-the- balance-sheet such objectionable items as 'Deficiency, in rolling stock, £154413, V and 'Expenditure .• on .renewals. of ways and works and replacement of rolling stock temporarily charged to capital remaining to be repaid out of revenue, £38,349.'

"Second—Towards (providing the funds required for such additions and improvements • on existing lines, ", and;;for additional . rolling stock -as • may Tie . sanctioned by Parliament^" thus to • the extent. abviating / the ■State for such purposes, thereby; increafis ■ing the ■ debt. to- the.State.. - •

"Third—Towards building up a 'ret-, venue reserve fund,' so that in a year, or in years, during which, by reason of unfavourable seaisoais, or other causes, . the net revenue of the railways is not I sufficient to pay in full the interest char- I geo on the railway debt of the -State, the deficiency may be, made good out of this reserve fund instead of out of the consolidated revenue, as 'in the past. 'The appropriation of the surplus revenue .of I the railways for these purposes will make it practicable tp gradually reduce tlie rail- I way as- may from time to time appear I to be advisable for the development of the production and trade of the State.'" The policy of the Victorian Commissioners is the reverse, of that of the New i Zealand Kailway Department. Finsb 'of. J all, they try to pay the interest on the railway debt in full, and when, they cannot do show a deficit. Next, they try to earn a surplus, to be devoted to pay off objectionable charges to capital and loans for additions to open lints. Then they, wish to establish a reserve , ■ i ..

fund to bo used to make up a possible railway deficit, and, last of . all, after placing the upon a sound finan- 1 cial basis, they will reduce railway charges, "for the development of the production of the State." That this is the proper order of procedure can hardly be a matter of serious debate. THAT BIG DEFICIT. - But, ignoring altogether, the question of additions to open lines, there still remains a large railway deficit,, .amounting 'to £i74,988 in the years ending 19051906, and £1,159,647 for the ten years :• ending 1906, counting simple' interest at 3:75. per cent, upon the capital cost of opened and unopened lines. .... It' we take the rate of interest at 4 per cent., which is more nearly correct, the deficit is £255,218 for the year'l9o6, and £1,656,051 for the period of ten yeans. Sir Joseph claims that interest " should be .reckoned ..upon the cost of the opened lines only, and that the. taxpayer and not tht railways should pay the interest on the cost of the unopened lines. It is indeed strange .that a well-established -railway system of over 2000 milts Sn length cannot earn enough to pay bare interest on ; the cost of building about- 40 miles of new line every year. In the case of a private road the money for such minor extensions would be borrowed upon the security of the property as a whole, and the interest upon such loans would be paid out of the earnings of tlie system, and there is no good reason why the same, practice should not be followed in the cose of a road owned by the Government. . ■ . THE ALLEGED CONCESSIONS. Sir Joseph admits the existence of an alleged' deficit, but says that against it . should be placed concessions given to the public in fares and freights, amounting in the past ten years, to £850,000, concessions in the form, of increased train sen-ices, to £883,000, and concessions in pay given to the railway staff,, amountin to £375,000. An examination of the Railway Statement for 1906 shows that there had been no cencessions in freight charges since 1890-1900 and x no concessions in fares since 1900j 1901. ' Before these years tlie" average charges : on freight were £.320 per ton- of freight carried, and the average cliiirgle passenger carded was £.OBB. The average charge per ton. of freight was then reduced to £.304, , and the average charge per passenger was reduced to £.OB, and since these dates? there have been no further reductions, except, in the price of season-tickets. It is difft-, cunlt' to' see how these concessions can have' amounted to £850,000 inV ten years, but in any case they .can hardly be regarded as .a, free gift to the public, since they apparently a large increase :of freight an£ passenger traffic, and a corresponding increase in gross revenue. Nor is it easy to se& how it- can be claim' • ed that the cost of the additional train service required to carry the growing traffic should be regarded as a gift to the public. Public pay for these things ; when they pay fares and'freight charges just as . they pay a merchant for his deli very waggonsi when they buy his goods. The concession of ' £883,000 on this account must be largely imaginary. Also it does not seem reasonable for the Department to claim that it has made concessions to the railway staff, merely because ■it has raised, their SEdaries. To judge by the complaints <tlilit frequently appear in: the papers, the members of the staff are not grateful to tlie Department for these'concessions, but still feel that they . are: underpaid, and that they will ' have to receive further concessions if the De-. partment desires to maintain the efficien- , cy of the service. . The report for 1907 of "Members of the Railway Depart-