THE POLITICAL OUTLOOK.

Dominion, Volume 4, Issue 1085, 25 March 1911, Page 3

THE POLITICAL OUTLOOK.

— 9 IS IT SATISFACTORY? I'THTHER ASPECTS OF RAILWAY AND LOAN FINANCE. (By Democrat.) Twenty years ago the Liberal party, then under the guidance of the Hon. John Ballance, started out on its selfreliant, non-borrowing policy. Since then £10,000,000 has been added to the public indebtedness of the country, and, so dependent have we become upon the money-lender, that Sir Joseph Ward, speaking in Taranaki recently, declared tliat to stop borrowing would be to bring disaster upon the country. Liberal finance has, therefore, brought ns 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 bo shown that the. £40,000,000 added to our National debt had been expended wisely and well, there would bo no room for complaint. But we know, unfortunately, that there has been a great deal of wasto 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 the following comparison between tlio various Australasian railways, the cost per mile being worked out from the latest available returns: —

Average cost Miles railway per mile. State. Open. £ Western Australia 1,971 6,559 Queensland 3,444 6,792 South Australia ... 2,027 7,566 Tasmania 470 8,510 Victoria 3,397 12,507 New South Wales 3,560 13,374 New Zealand 2,717 10,494 It will be seen from this table that the cost per milo was only exceeded on tho wider gunge and more expensivelyequipped liucs in Victoria and New South Wales, which might reasonably bo expected to cost from fifty to seventy-five per cent, moro than our lighter, narrow gauge, and less expensively equipped lines. But an even more, significant comparison can bo instituted between tho cost of railway construction at varying periods in tho history of the Dominion—a comparison that throws intD strong relief tho costly nature of tho co-operativo works system. The official figures covering the 33-year period from 1877 to 1910 given in tho "Statistics of New Zealand" (page-483) show that in 1881 (tho capital expenditure upon the railways is not available until that year), there were 1287 milc-3 of working railways being operated, and upon these the capital expenditure was £9,228,334, an average of £7170 per mile. In 1891 tho mileage had increased to 1812, and tho additional cost to £14,278,586. The additional Gso miles had therefore cost £5,050,252, or , £9,095 per mile.. On March 31, 1910, there wcro 2717 miles of Government railways working, tlio capital expenditure being £23,513,476, representing an average cost of £10,494 per mile. Between 1891 and 1910 tho 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 tho cost of railway construction per mile under tho Governments noted: — ,i

Miles of ■ railway Cost Adminis- con- p?r Years. tration. structcd. mile. 1884-IBS7 ... «fitout-Yogel 332 5.31!) 1887-1891 ... Atkinson 115 10, DBS IS9I-1593 ... Balhnco 44 -10,303 1593-1907 ... Sodden 521 14,130 1907-1910 ... Ward 310 19.100 Figures such as these require a lot of explaining away, more particularly seeing that tho greater increases synchronise with tho introduction and extension of the co-operative works system.

Short-dated Loans and their Cost. A featuro of Liberal finance is the extraordinary growth of the short-dated loan. Ten years ago wo raised the greater portion of our loan moneys in Loudon. We still go to tho world's metropolis for our bigger loans, as witness tho £5,000,000 loan of last year, but the Minister for Finance has developed a surprising aptitude for mopping up moneys wherever he can lay hands upon them, be it in Australia, New Zealand, or elsewhere. Tims wo liavo tho short-dated loans; tlio inconvenienco of which may yet make itself unpleasantly felt in tho 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 bulk of the money was secured as recently as 1908, the four-year period being apparently favoured by the Minister for Finance. Next year (that is in 1912) tho Treasury will have to find tho nice little sum of £6,426,195, that being tho sum total of moneys falling duo between January 1 and; December 31.* And, with tlm exception of one sum of £194,200 borrowed under tho Consolidated Stock Act, 1884, the whole of this money lias been obtained sinco 1901, and by far tho larger amount sinco 1906. Just what these short-dated loans cost tlio country it is hard to say, as fresh loans must bo incurred to take their place. In analysing tho Public Works Fund moneys, it was shown that the fortythree millions raised by loan had cost £1,341,932 in charges and expenses. Account was not then taken of tho fact that, of this sum, over nine millions were obtained from tho Post Savings Bank (£9,631,707 out of the £12,301,772 held as securities, by the PostmasterGeneral consisting of Government bonds in respcct of works loans), and if that amount be deducted from tho total, it will bo seen that the proportionate cost of raising tho balance is materially increased. Instead of costing 3 per cent the charges and expenses would ho nearly 4 per cent on the £33.410,515, raised outside of the post office. There is nothing very inspiring about this sort of finance, and tho multitude that acclaims the Prime Minister as a financial genius of the first magnitude, would do well to look more closely into the business before further committing themselves to a form of financo that savours so strongly of recklessness. The shortdated loan is not only expensive, but it may become very embarrassing in tiipes of financial pressure. Apart from the £5,000,000 loan a portion of which Imay possibly be redeemable within tho \same period, the Minister for Financo has to provide £12,029,717 within the next five years. Tho fact can he verified by a reference to the Public-Debt table in the volume of statistics for 1909, pages 475-7. in which the several amounts and their due dates are set forth in detail. How much of this is due to the mistaken notion that investors who take up short-dated loans are prepared to convert their securities into inscribed stock it is impossible to say. No doubt a very considerable amount was expected to be so converted when the loans wero offered, as the policy, or idea, is perpetuated in the five million loan of last year. Terms that, may be described as extravagantly liberal were offered to the investing public, to induce them first to ta!;o up tho short-dated debentures and then to convert them into inscribed stock, the loan in the later case being practically obtained at 7 or 8 per cent, discount, and o. consequent increase in the interest payable.

although nominally it remained at the rate quoted ill the prospectus. Unsatisfactory Railway Finance. In respect of our national debt, the railways form one of our- principal assets. His essential, therefore, that they should he,'maintained on a sound financial footing. That they are so maintained is vcrv much open to question. While there is a very great improvement noticeable in tile transactions for 1909-10, and it is claimed that the percentage of profit to capital invested is 3.80 per cent., it is evident tliat. the trno not disclosed: The "net profit'' upon tile working of the line is given by the Minister as £1,050,31(i. But, before "profits" can be properly estimated, it is only busi-ness-like to charge against the revenue tlio interest payable on the capital invested. That interest has to bo provided, either by the railways or the taxpayer. AVe have over £30,000,000 invested in open and unopen railways, the capital cost of the open lines being stated at £2.8,513,476. The interest payable on that sum alone would more than absorb the "profit" mado last year.

Charged to Capital Account. Other factors havo operated to unduly swell tile so-called "profits" of the Railway Department. Works properly chargeable against revenuo are still being charged to capital account. Under the vote for "Additions to Open Lines," charged to capital account last year, a sum of £318,090 was expended upon tlio railways, the' greater portion ot which was properly speaking a charge against revenue. The items covered by such expenditure include additions to station buildings, platforms, and dwellings, water services for the Locomotive Department, fencing, gas and electric lighting, signals and interlocking apparatus, loading banks, stockyards, approaches and crossings, etc., .and even such perishable things as tarpaulins. Charges of this character arc, speaking generally, defrayed on other systems out of revenue, and are regarded in the light of maintenanco cliargcs. That this is the case, and that, oil the part of the Minister for Railways at least, there is a recognition of tho principle that such matters should not bo charged to loan account is apparent by remarks recently mado by Mr. Millar. In speaking of certain regrading works that aro being carried out at Tuakau, Mr. Millar emphasised the fact that they were being paid 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 Commissioners, in their anxiety to mako tho railways pay,, obtained special votes .from Parliament for improvements and additions to open liucs. They began in a very small way, their first vote only amounting to £12,928, and tho votes they received in this respect never readied anything like tho dimensions they havo since attained. In 1895 tho Commissioners wcro retired, the non-political regime ended, and tho Government assumed direct control of tho railways. During the two years that followed, tho votes for "Additions to Open Lines"- were suspended, but in 1897 they were again commenced, and sinco 1897 tho expenditure in this direction has amounted to £4,493,090, or an average for the fourteen years of £320,925 per annum. Tlieso facts and figures go far- towards •showing that tho railway "profits" arc purely paper profits. Tho following table shows tho amounts voted during tho last ftvo years under tho "Additions to Open, Lines"-heading:—:— Amount Voted for f , Additions to Open . Lines. Year. £ 1906 351,043 - 1907 308,898 1903 333,386 1909 398,096 1910 318,091. This represents an average of £341,902 per annum, which is greater .than that of tho 14-year period,' -although tho latter includes votes of £777,989 in 1902 and £423,167 in 1903. Tho comparison certainly does not add to the financial reputation of the Government.