D—2.

I therefore had the whole internal capacity of the Railways Department explored, and plans were evolved which would assist to the greatest possible extent in developing the Government's aims through a comprehensive and long-range policy applied to the Department's work. Many projects which had been carefully examined previously —and had either been started and dropped, or left in abeyance for some more favourable time — were re-examined in the light of the Government's policy and the country's need ; and as many of these were found to be both practicable and desirable —with, of course, certain revision in view of changed conditions —steps were taken as quickly as possible to have such projects brought to fruition. At the same time many new projects were planned and put under way. The result of this large-scale planning for the public welfare in railway matters has been most encouraging ; in fact, I am not aware of a single major improvement adopted under this policy that has been the subject of adverse criticism.. On the contrary, each improvement made has been accorded a warm welcome and has received the best proof of public approval—namely, increased patronage. Associated with the Government's railway plans was the decision to complete certain new lines which had been previously commenced and abandoned ; and it has already been my happy privilege to see one of these works completed. I refer to the Napier-Wairoa-Waikokopu section of the Napier-Gisborne railway, which my Department took over on the Ist July, 1939. An important aspect of this and other lines intended to further the major integration of the Dominion's transport is the necessity for ensuring the utmost mobility as between one district and another for defence purposes. In this connection not only are these new lines essential towards the Dominion's protection, but the Railway Workshops, which are the most modern and best-equipped engineering plants in the Dominion, are also playing an important part in the country's defence. THE FINANCIAL ASPECT. I have much pleasure in stating that the financial year ended 31st March, 1939, has been a record year for railway business, the gross revenue —for the first time in the Dominion's history—exceeding £9,000,000, the actual amount being £9,345,387. This is all the more notable following a year which also established a record in gross operating earnings. The railway barometer, in New Zealand as in other countries, is always regarded as a good indicator of the country's prosperity, even though the fluctuations of railway business and general trade conditions may not always exactly coincide, and, viewed in this light, the increased business done by the railways, the State's biggest and most important developmental and commercial enterprise, is an indication of the strength of the country's economic position. The gross earnings for the year totalled £9,345,387 and the gross expenditure £8,644,324, leaving £701,063 of net earnings, an increase of £68,266 over the net earnings of the previous year, after placing £990,495 out of revenue to the credit of the various Depreciation, Reserves, and Equalization Accounts. The total expenditure (£8,644,324) was £642,935 more than in the previous year, due mainly to the payment of wages at higher rates, higher prices for coal and stores, and the cost of handling the increased business. The net revenue of £701,063 is equivalent to 1-23 per cent, of the capital, and the amount set aside out of revenue for depreciation alone is £698,678, equivalent to I-19 per cent, of the capital. Tn addition, reserves set aside out of revenue for track-renewals, slips, floods, and accidents, betterments, insurances, and workers' compensation amounted to £291,817. The improved net financial return was helped by an increase of 10 per cent, in fares and freights in the latter months of the financial year. I anticipate a marked improvement in the net earnings of the Department during the present financial year, for the first sixteen weeks of which the net revenue earned will be approximately £200,000 greater than for the corresponding period of last year, notwithstanding that there is a day less in this year's accounting period.

II