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The New Zealand Railways Magazine, Volume 2, Issue 4 (August 1, 1927)


Recent information to hand indicates that in 1926 for all the railways in Great Britain the average rate of interest earned and dividend paid upon the capital issued was 3.6 per cent. This rate is somewhat lower than the usual average in Great Britain, but in view of the recent amalgamation of the principal lines into four main groups, the result is interesting as an indication of the present day earning capacity of railways in a country where they have been developed to their highest point of efficiency.

Bearing the above figure in mind, it is worth recording that the earnings of the New Zealand Railways, during the last twenty years, have given an average net return of 3.8 per cent. on capital invested. During the first five years of this period it was contrary to Government policy to earn more than 3 per cent., the practice then being to keep down earnings by making concessions to the users, particularly the primary producers.

Another point that must not be over-looked, is that it is only in the last two years that our Railways have set aside reserves against wasting assets and for betterment purposes, and have provided Superannuation subsidy out of earnings. Had the earnings of the good years in the earlier period been used, in part, for these purposes, our capital account would have been probably £10 million less than at present, and the task of earning interest to meet the cost of capital invested would have been correspondingly lighter.

However, the earnings of the last two years-that is, for the period under Board management-show an average return on capital invested of 4.17 per cent., a result which (except for the war period, when staff and expenses were ruthlessly clipped) is better than that achieved in any two previous years.

If exception be taken to the sum paid out of the Consolidated Fund, amounting to £804,768, on account of losses on non-paying branch lines, many of which are worked purely “for the country's good” and cannot be regarded as business propositions, it must be remembered that this sum is more than offset through the relief afforded the Consolidated Fund by a sum amounting to £320,000 provided out of Railway earnings for Superannuation subsidy (but which would, under the old system, have come from the Consolidated Fund), and the improved position of the Railway balance sheet by an unexpended balance set aside for replacements, betterments, etc., amounting to £671,984.

In view of these balancing factors, the variation in the percentage figure may be taken as a reliable index, and so considered, it will be seen that the railways of New Zealand hold their own with those of Great Britain, and are responding to the impetus of progressive administration.

Some criticism-doubtless by those not in possession of the full information-having lately been made regarding State railways in general, the above should help to make clear the position so far as New Zealand is concerned.

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In Canada the principal lines that now constitute the “Canadian National Railways” were bankrupt concerns under private management, and were taken over by the Government because there seemed nothing else that could be done with them. Under Government ownership they have shewn steady improvement, until last year their net earnings were three million dollars greater than those of the Canadian Pacific Railway, the latter being recognised as one of the most successful among private railway companies.

Of railways in the United States it is authoritatively declared that all, excepting about half a dozen, have at some time or other been in the hands of receivers. The Pennsylvania may be quoted as a typical instance of a successful private railway there. In its prosperous years, instead of throwing profits to the users in the way of concessions, as was the State railway practice in New Zealand, it built up therefrom a billion dollars of assets not represented by stock securities. It is thus now able to pay a 7 per cent. dividend. Were all its assets made up from borrowed capital, this dividend would be reduced to 4.2 per cent., or approximately the same rate as has been earned by the New Zealand Railways during the last two years. The policy, therefore, adopted with the financial reorganisation of our system, under which proper provision is now made, by the creation of reserves, for the replacement of wasting assets, etc., and for the introduction of betterments, should have the united support of all who approve of the application of business methods to railway management.