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their wives, were prepared and submitted at the same time. The proposals were discussed with representatives of the Railway staff, who expressed their appreciation of the improvements which the draft Act and regulations contained. The alterations made in the Act and regulations will involve a very considerable increase in the operating-expenses. In view, however, of the fact that the financial exigencies of the Department had prevented any material advances being given to members of the First Division for some time, they were in equity entitled to receive consideration and benefit. For many years past large concessions in rates have annually been made on various local commodities carried over the railways. Many of these rates were fixed for the purpose of inducing settlement and enabling struggling industries to get firmly established at a time of depression when the prices of all local products were very much lower than they now are. The conditions prevailing at the time rate-reductions were granted have completely changed. The country has entered upon and been passing through an era of prosperity. Land has appreciated in value, prices of all our staple products have steadily advanced, and numerous industries have been established on a sound commercial and financial basis. The railways have contributed in no small degree to this satisfactory position, and the efforts of the Railway staff deserve any recognition that has been made. Therefore, should it now be found that the normal increase in the railway traffic is insufficient to enable the Department to meet the increased operating-expenses and at the same time pay the interest required by the Government on the capital invested, the rates for conveyance of goods and live-stock should, in my opinion, be reviewed and fixed on a more remunerative basis, having regard to the prevailing commercial and industrial conditions. In view of my retirement on superannuation, I deemed it desirable that a report on the condition of the New Zealand Government railways should be obtained from an independent engineer of standing and experience. The Government approved Taj recommendation that advantage should be taken of the presence in New Zealand of Mr. John Henry Lowe, who was formerly connected with the New Zealand railways, to furnish such a report. Mr. Lowe's time would not permit of his seeing the whole of the railway-lines, but he inspected about 1,700 miles out of the total system of 2,859 miles. His report is attached hereto, and will repay perusal. It shows that very material improvements have been made in the lines generally ; that the expenditure which has in the past been devoted to improving the permanentway and other structures has been justified, and that the money has been expended on right lines. Ido not subscribe to Mr. Lowe's view that increased traffic should be dealt with by running more trains and the building of more engines within the present limits rather than by the utilization of locomotives of greater power than those at present to haul heavier loads. Railway experience in , all countries is that for the purpose of economical working it is essential to employ engines of the greatest tractive power. This enables the maximum loads to be hauled by the minimum number of trains required to deal with a given traffic, and so increases the capacity of the line. Employment of engines of small tractive power involves a corresponding increase in the number of trains required to deal with an equal tonnage, a reduction of the tonnage hauled per train, and results in overcrowding the line, reducing its capacity, and rendering duplication necessary earlier than it otherwise would be. The practice followed on the New Zealand railways has been to gradually increase the weight and tractive force of the locomotives employed, and very satisfactory results have been achieved. The policy of replacing the lighter types of engines by heavier locomotives with a fixed limit of axle-load should undoubtedly be continued. As this will by my final report I may be pardoned for making reference to the alterations that have taken place in the railway system during my regime as General Manager. Dealing first with the staff, the number of men employed on 31st March, 1<895, was 4,597. The minimum rate of pay for members (cadets) of the First Division was £30 per annum, and the maximum £800, which was the salary of the General Manager. In the Second Division the,minimum rate was 3s. per day for juniors, 6s. 6d. for adult labourers, and the maximum was 13s. per day. This latter rate was paid to eight members only. The hours of labour were, as a rule, not defined. Engine-drivers and guards worked fifty-four hours per week, other members of the Traffic Branch at least sixty hours per week, but, generally speaking, they worked as long as required without payment for overtime. Leave of absence was to a considerable extent irregular. The number of men now employed is 14,434. A system of classification of the staff has been introduced and firmly established. The minimum salary for members (cadets) of the First Division is £50 per annum, and the maximum £3,000 (General Manager). The minimum rate of pay for juniors, Second Division, is ss. 6d. per day, for adults 9s. per day, and the maximum paid is 15s. per day. The hours ofUabour, where the work is continuous, are eight per day. Married men and widowers with children dependent on them are paid a minimum of £140 17s. per annum irrespective of length of service. Overtime rates are paid to engine-drivers, firemen, guards, and shunters for any time worked over forty-eight hours per week. Sunday duty is paid for separately at special rates. The men in various grades advance from the minimum to the maximum rates by fixed annual increments. Travelling and night allowances of members of both divisions have been increased. Members of the First Division, when absent through sickness or accident, receive full pay for fixed periods specified in the regulations, and in the case of the Second Division payment iS provided for under the Workers' Compensation Act for time off duty through injury sustained at their work, and in the event of death their legal representatives receive compensation under the same Act. Leave of absence varying from nine days to three weeks is annually granted to members of the service. Fortnightly pay has been inaugurated for the purpose of enabling employees to pay cash for their purchases instead of having to obtain credit, it being represented that this is more advantageous than the four-weekly system of pay previously in force. Free passes are granted to members of the staff stationed at isolated