CHAPTER IV.--THE FINANCIAL POSITION.
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 (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.
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.
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.
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.