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The New Zealand Railways Magazine, Volume 1, Issue 1 (May 1st, 1926)

Finance

Finance.

At the beginning of the current financial year, the Railway Department's finance was separated from the General Fund, thus enabling the Department to conduct its operations on lines approximating to those of a private company. By this means the Administration's responsibility was increased; room was given for exercising greater initiative, and the Department's financial operations rendered sufficiently flexible for carrying out a sustained programme of works, and meeting other emergencies without by one iota diminishing Parliamentary control. Services previously performed gratis for other State Departments, are now debited against such Departments, and vice versa. The new system will have the great advantage of letting the country know just what it is costing to work those lines which, as commercial propositions, would not be worked at all but which are considered to be justified for developmental purposes. Under the old system of finance, the Department was required to return what was called a “policy” rate of interest on capital invested in the railways. This was less than the actual rate of interest payable on the moneys in the railway capital account, and it was generally stated in justification for fixing page 9 this lower rate of interest that this was in consideration of the fact that the railways were performing developmental services which constituted a burden on its finance. But the value of these services never seems to have been calculated with any degree of exactness, so that it was never really known where the railways stood financially. Under the new system the position will be quite clear and the country will know precisely what its non-paying developmental lines are costing, and the Department, while being required to return the proper rate of interest, will get credit for the exact amount involved in providing the experimental services—no more and no less. The Railway now meets its own obligations—interest on capital expenditure, insurance and depreciation reserves and sinking funds, etc. At the close of the current financial year the balance-sheet, together with Departmental accounts prepared after the usual company form, will show clearly where the Department stands as a business concern. Please note that some years must elapse before funds now accumulating for replacement of wasting assets can meet any considerable portion of renewal requirements.