CHAPTER IV.--THE FINANCIAL POSITION.

Expenditure.

RAILWAY. (continued)

  178. In the figures in the above table, no provision is made for depreciation, renewal or interest on the capital expended by the Government for the purposes of the railway and ancillary services. Had strict accounting methods been adopted, the items of depreciation and renewal would have represented an additional liability of approximately $600,000 per annum. On this basis the deficit for 1932-33 would have been $814,332, instead of $214,332 as shown in the table. It is claimed, however, that, so far as the operation of the main line is concerned, very little expenditure will be required in renewals during the next 20 years.

  179. The yearly deficits incurred since 1923, amounting in all to approximately $4,200,000, were in most cases met from loan funds and not from the current revenue of the Island. In addition to these losses on operation, capital expenditure for additions and improvements amounting to some $6,000,000 has been met from the proceeds of loans. Excluding payments for interest on these loans, the net cost of the Railway to the country during the decade 1923-33 may thus be placed at approximately $10,000,000 or an average of $1,000,000 a year.

  180. The total net cost of the Railway to the country from the original survey of 1875 to the end of the year 1932, including the cost of construction, renewals, operating deficits, the value of the lands granted to the Reid Newfoundland Company and all other expenses connected with the undertaking, is estimated at $42,500,000 of which $39,500,000 has been provided from loan funds. The figure is equivalent to over one-third of the public debt of the Island. This calculation, however, takes no account of the indirect but none the less substantial contributions which may be said to have been made by the Railway to the revenue of the Island, partly as a result of the increased employment given to the people and partly as a result of the opening up of parts of the country which would otherwise have remained closed.

  181. Great efforts have been made during the last two years to enable a balance to be achieved between the revenue and expenditure of the railway. Of the six branch lines, that from St. John's to Trepassey has been abandoned; the stations on the branch have been recently been sold by auction and arrangements are in view for disposing of the rails. On the other branch lines, the service has been drastically curtailed, and between Carbonear and Bay de Verde has been entirely suspended. The winter service on the main line has been reduced from three to two express trains a week in either direction, involving a corresponding reduction in the steamship service from Port-aux-Basques to North Sydney. The Railway staff has been cut down from 2,400 to 1,800; and their salaries have been reduced by cuts ranging from 10 per cent. to 25 per cent. Coastal steamer services have been curtailed; purchases have been reduced to a minimum and determined endeavours have been made to secure economy in management.

Trepassey Trepassey (Southern Shore), n.d.
Photo by Holloway. From the album of photographs furnished to the Newfoundland Royal Commission, August 1933. Courtesy of the Centre for Newfoundland Studies Archives (Coll-207), Memorial University of Newfoundland Library, St. John's, Newfoundland.
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  182. Notwithstanding these efforts, there has been a continuing, though a reduced, loss on operating expenses, amounting, as will be seen from the foregoing table, to $339,000 in 1931-32 and $214,000 in 1932-33. Railway receipts during the first few months of the current financial year have shown an increase on those of the corresponding months of last year, but, even if the improvement should be maintained, it can hardly be anticipated that the railway, as at present conducted, will be able to show a surplus of revenue over expenditure at least during the continuance of the present depression.

  183. We content ourselves with recording these facts. In a later chapter we shall review the suggestions made to us regrading the future of the railway, and shall point out the need for a comprehensive overhauling of the railway and steamship services of the Island in order that, so far as possible, they may no longer form a charge on the Exchequer. We would only add here that we have ourselves travelled over almost the whole length of the railway, and, while the main line is in good condition, we do not doubt that if the branch lines now in use are to be continued in efficient operation considerable expenditure in renewals will be required at no distant date. The future of these branch lines thus constitutes a special problem.

HOTEL.

  184. The Newfoundland Hotel, now owned and operated by the Newfoundland Government, was built seven years ago under private enterprise at a cost of $1,000,000. The promoters of the scheme, the Newfoundland Hotel Facilities, Limited, were given the site free of charge by the Government and derived their capital in part from an issue of $450,000 first mortgage 6 per cent. bonds guaranteed by the Government both as to principal and interest. The Company was soon in difficulties and eventually went into liquidation in 1930. The Government then decided to buy the hotel in order to protect their interests and the hotel passed into their control on the 30th November, 1931. The hotel is conveniently situated, well furnished and comfortable.

  185. Up to that date, the hotel had shown a profit on operating expenses, but, owing largely to the unfortunate effects of the world depression, a loss of $17,000 was incurred during the first year of Government ownership. During the present year prospects have improved and there is hope that with careful management the operating loss in 1933 will not exceed $1,500. As in the case of the railway, however, no provision has been made for depreciation, renewal or interest on capital, and the liability of the Government not merely to make up any current deficit but also to meet any necessary expenditure on capital account is one which cannot be ignored in any estimate of the future.

GENERAL.

  186. When all these factors are taken into consideration, it will be seen that not only has the current administrative expenditure of the Island been reduced to the lowest level but that an increase must be anticipated if the efficiency of the country's essential services is not to be impaired. A reduction in expenditure can indeed only be brought about either by a reduction in the expenditure on able-bodied relief or by a reduction in the present burden of the debt. We have, we hope, made it sufficiently clear that there can be no prospect of securing any appreciable reduction in the former, pending a revival of trade and an improvement in the prices obtainable in the world markets for Newfoundland's products. It is therefore only by a reduction in the present burden of her debt that Newfoundland can obtain any immediate relief. We therefore conclude our review of the financial position with a detailed survey of the public debt of the Island.

Image description updated May, 2004.



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