Mr. Hickman We have all had this report for three or
four weeks and have had an opportunity to read through it. I move that it be
taken as read.
Mr. Reddy I would like to see the report read. It is going
to the outports and they are interested.
Mr. Job I second Mr. Hickman's motion. This has been
published in the newspapers and to read it would be a waste of time. There
are other reports to be brought in and some of them may take a whole day
to read.
Mr. Smallwood It is true that this report has been
published in the
Daily News and in the
Evening Telegram. I do not think it has been
published in the weekly newspapers; and even if it had been in all the
papers put together they do not reach more than a certain fraction of the
population of Newfoundland. On the other hand, the radio does. It
seems to me that all the people in Newfoundland and Labrador are entitled to
all the information in this report and in all the other reports that
may come before this Convention. It seems to me, not only desirable, but
necessary, that it should come before the people of Newfoundland. I know of no other
way it could be done.
[After some discussion, Mr. Hickman withdrew his motion, and the Secretary continued
reading the report]
Mr. Higgins I note that Mr. Smallwood is making some
allowance for customs duties and wages; did the Committee take into account
the income tax paid by employees?
Mr. Smallwood Perhaps the Committee made a mistake even
in mentioning the customs duties that the Railway paid the government if it
raises an awkward question such as the income tax paid the government
by employees. We did not consider the income tax paid by the
Railway employees to the government.
Mr. Higgins What would the average wages of monthly
employees be?
Mr. Smallwood The Railway employs 4,000
men. We did not break them down into different classes of wages and
salaries. We took the total amount paid. Wages was one item of the Railway
expenses. We showed the total forevery year. We have shown the total
cost of the Railway and the total income, the total loss and total profit in
each year. If the report is full of statistics now, it would be more
complicated if we had gone into the costs in detail.
Mr. Higgins I am not trying to be difficult. We have a
picture of the net operating loss — it is costing so much money a year; is
it not fair to assess duty and income tax also? That would reduce that
loss.
Mr. Smallwood Yes, in a certain sense; but the same
argument applies to every department of the government. Public Health and
Welfare, for instance is spending $4.5 million; you might find
how many employees they have, what income tax they paid, and then if
you like, subtract that and say the cost is that much less.
Mr. Smallwood It may be the real position when you take the
nine reports and find out what is going back to the government in taxes out
of the wages they pay. But why do it in a particular case if you do not
do it in all cases?
Mr. Job I think Mr. Higgins is right. We know that the
Railway is costing us money, but it is not costing us as much as we imagine
it is. It would be of benefit if we could find what it is costing the
country in an absolutely net way. It may be difficult for the Committee to
get all details.
Mr. Smallwood If you do that, if you draw up an account and
on the left hand side you show the total amount of money the government spent
on wages, and on the right side you show the total income, if you show
in that total income the part that is paid by their own employees in taxes,
surely you would have to reduce it on the other side. Where would you
end?
Mr. Hollett On page 4 of this report, paragraph 3, it
says "It will be noted...." Has the Committee tried to find out why this
sudden change?
January 1947 NATIONAL CONVENTION 223
Mr. Smallwood We did and it is worse than that. In
1944-45 they had a loss of $500,000. In 1945- 46 they had a loss
of $1 million, and in this year, which will end March 31, 1947, it will be
$1.5 million. The operating loss is definitely on the increase. It
applies to railways all over the world. There is an upward trend in
operating rates, the cost of coal, of supplies of all kinds. For example,
the cost of coal has increased to the railway by 100%. The cost of
wages has increased, so the Railway informs us, by 70%. That does not mean
a 70% increase in the pay of the railroaders, but the number of
employees has had to be increased. The reason is that there are more trains
of all kinds, more runs made, and more staff engaged to do more work
and put in more time, and additional freight handlers here and along the
line. More freight handlers are handling coastal boat freight, which
in turn calls for more overhead staff at headquarters, accounting,
auditing, etc. There was a time this year when the total number
employed was 4,300. That was largely seasonal staff.
The loss jumped from $500,000 the year
before last to $1 million last year and $1.5 million
this year, and the reason is that the cost of operating is going up faster than their
income is going
up. That is a situation that applies to every railway in North America today, so the
Railway
informed me. There is not a railway in Canada or
the States, I am told, that is today even meeting
its operating costs. Our railway is doing the same
thing and is going to do so even more in the future
than it has done up to now.
Mr. Hollett I just asked the question so that it might
be brought to the attention of the public. I think some mention of that
should be made in the report.
Mr. Smallwood That is not in the report proper, but the
appendix contains a reference to it by the General Manager of the Railway
himself, signed by his own name. He deals with that very thoroughly.
He speaks of the mounting cost of supplies, coal, number of employees, etc.
There was a small increase given to railway men, but it was mostly due
to the increased number of men employed. It is only fair to say that on
behalf of the railwaymen....
Mr. Job I don't want to be too persistent, but I
would like to draw attention to that section on page 5, "All the
modifying factors having been taken into consideration....etc."
[1] Now is that correct? I don't think it
is, because on page 4 the report says $702,325, that is before the modifying
factors have been taken into account. The modifying factors show
duties to be deducted, so surely it cannot be correct that the loss is still
$700,000. Is that section wrong?
Mr. Smallwood No, sir, but for the 26 years that the
government has been operating this Railway, which ended on the 31st of March
last, the government has had to pay the Railway a total amount of
$18,250,000. Now if you take that $18 million that the government had to pay
the Railway — first of all to meet their losses and then to
buy new equipment, and for capital and maintenance account, and
divide it by the 26 years it comes to an average of $702,000 a year. It is
true that at the bottom of the next page we put it in round figures,
but when we say that all the factors have been taken into consideration, we
do not mean as a matter of accountancy — the customs duties, income
tax paid by railwaymen, etc. We do not take it into account as a matter of
bookkeeping, but into consideration. The position is not
quite as bad as it sounds. We know it is not a dead loss of $700,000. We
have got the railway and the services performed, 4,000 men get their
living and they pay income tax, which does help the revenue. But I fail
completely to understand Mr. Job. Does he really mean that we ought to
have found out exactly how much income tax is paid to the government by
railroaders, or if we were to find it out, how could we deduct it?
Mr. Job I am talking about the customs duties.
Mr. Smallwood All right, take the customs duties and
purchases. How are you going to find that out? Some of the goods they bought
and paid duty on them, some of them they imported and they were duty
free. If they got flour for their dining cars they paid no duty. Are we
expected, as a Committee, to find out every detail of what the Railway
spent, who got it and what it was spent on, and follow it through and see
what duty was paid on all these articles, and then deduct it from that
$700,000 a year? I don't think the Committee would consider it. If it was to
be done it would have to be a job for high class auditors.
224 NATIONAL CONVENTION January 1947
If it has to be done for the Railway it will have to
be done for every other department.
Mr. Job They state definitely here that the duty paid
by the Railway was $213,915 in one year, and in another year it was
$167,636, so that if that was deducted from $700,000, it would be more
like $500,000. The loss is considerably less than $700,000.
Mr. Smallwood I want to know why that amount should be
deducted. Why should you deduct what the government pays back to the
country on what they import? If a firm on water Street pays so much to the
government in customs duties, and if that firm pays income tax and
profits tax, how is that any different from the Newfoundland Railway
paying customs duties to the government?
Mr. Smallwood The government pays $700,000 a year for
the past 30 years, but the Railway being an importer of certain goods pays
duty on these goods the same as a commercial firm. Mr. Job wants to
know why that should not be deducted, but the point is not what the Railway
is costing the country, but what the Railway is costing the
government. We are dealing with public finance. What the Railway is costing
Newfoundland is this: what is paid out by the Railway is
paid by Newfoundland. Now the government pays out so much more; in addition
Newfoundland is supporting the Railway by travelling on it
and paying fares, sending freight, etc. The general economy of
Newfoundland is doing that, but the government is making up the difference.
Between the public and the government the Railway gets a
certain amount of money — enough to pay their expenses. They don't get
enough to pay their expenses from the public.
Mr. Job I don't want to take any part in that
suggestion at all. I just want to say what is the meaning of that sentence,
"All the modifying factors being taken into consideration." But you
have not deducted them.
Mr. Smallwood No, we are taking them into
consideration, but we are not deducting them.
Mr. Job Then, you have not taken them into consideration.
Mr. Hollett Would that reply be suitable or
satisfactory for the years 1922-23 and 1923-24? 1922-23 showed a loss of
practically $600,000.
The next year showed a loss of only $6,000. Would the same reply be
given?
Mr. Smallwood Yes. In 1922-23 the Railway lost
$593,000. Next year the loss was only $6,500. The reason is exactly the
same. In that year the Humber
[1] began, and a
tremendous amount of tonnage was hauled on the railway, which gave
them a sudden increase in their revenue, and that was not offset by an
increase in their expenditures or costs of operating, because they did
not have to take on additional employees, and they did not have to pay large
amounts of additional money for coal.... Pass on to the next year,
1924-25 — they lost $328,000, because that big heavy traffic in connection
with the starting of Humber had more or less passed away, and their
costs did begin to creep up again.
Mr. Hollett Why did they creep up again in that second
year?
Mr. Smallwood I am sure Mr. Hollett does not expect me
to know the details of all these years. We all remember the Humber, but
exactly why in detail their costs rose each year, I do not remember.
Mr. Reddy Did it ever occur to your Committee that the
Railway is overstaffed at present?
Mr. Smallwood I can't say whether it occurred to the
Committee. I can only say it never occurred to me that the Railway is
overpaid, and it still does not.
Mr. Reddy To my mind, sir, the country believes that
the Railway is overstaffed.
Mr. Figary I want to assure Mr. Reddy that the Railway
is not overstaffed. In Argentia a few days ago there were two boats at the
dock, and they had 30 men there in order to get those two boats ready
for the southwest coast. Not only at Argentia, but at other places along the
railway there should be more staff. I have been working with the
Railway since 1914, and I can say that the Railway is not overstaffed.
Mr. Fogwill I wish to support Mr. Figary. I don't think
they are overstaffed. Sometimes the men may have more to do than at other
times, but I have worked there since 1924 and I know that often we
have had to put in too much overtime.
Mr. Smallwood Mr. Reddy ought to give us some indication of
where and in what particular
January 1947 NATIONAL CONVENTION 225
departments or branches of the railway system there
is overstaffing. I have been along the railway many times, and in
every single individual railway station from here to Port-aux-Basques. I
can assure you that so far as Gander station is concerned they are not
overstaffed. When a man is paid for ten hours work, and then has to come
back for two or three hours overtime, with no pay at all, for six days
a week for months and months on end to keep up with the work, I don't think
there is any overstaffmg.
Mr. Higgins I may be anticipating parts of the report,
but I note that the only reduction in operating costs that Mr.
Smallwood's Committee has suggested might be caused by increasing these
companies that have special rates. What is the real trouble with the
Railway that they are losing money? Has the Committee any real reasons to
give?
Mr. Smallwood I thought that I had one. He will recall
I said that every railway in North America is losing money, ... unless they
increase their freight rates, which the railways in America and Canada
are desiring right now to do.... If we increase the freight rates the
general public will have to bear the cost of operating the railway. If
we do not, the government has to pay the loss. Whether the people pay it or
the government pay it, the people of Newfoundland in general have to
stand the loss.... As for the other point he raised. Early this afternoon
there was a memorandum laid on your desks from the management of
the Railway replying to the Committee's criticisms of these special
rates that are given to the paper companies, the Buchans Mining Company, Imperial
Oil Ltd, and Shell Oil. We will come to that;
perhaps Mr. Higgins will be willing to wait until we come to that in the
report.
Mr. Higgins I am quite willing.... I would like Mr.
Smallwood to explain whether there is any difference between the subsidy
that is paid by the government now, and what used to be paid.
Mr. Smallwood Yes, I believe there is. Major Cashin,
who, as Finance Minister, used to pay it once, will probably tell us about
that.
Mr. Cashin In connection with that, prior to the
Commission of Government the Railway received $500,000 a year in subsidy.
When the Commission of Government came in they
received $250,000. That was $250,000 difference as regards
Commission of Government and the days prior to that. The $250,000 was out
of one pocket into another, and the Railway would have been much
better off if it had got that extra quarter of a million dollars. No one
brought up the fact that the government advanced $18 million since
1920-21.... I feel the boats should continue to get subsidies, particularly
since wartime, because the cost of operations have gone up.
The cost of coal has gone up 100%. I understand there is a plan on
now to convert the railway to oil. Coal costs $1.5 to $2 million a year —
$18 a ton.
Mr. Cashin That is $1,300,000 — an additional charge of
$600,000. Now I understand they are going to convert to fuel oil and hope to
save $500,000 a year. Under present circumstances and business
conditions, it is going to cost $750,000 a year from the treasury unless
they cut expenses to the bone. Those Clarenville ships
[1]
should be segregated from the Railway. All boats not connecting with
the railway system should be clear of the Railway. They will find the
Auditor General condemning the whole accounting system of
the Railway. You will find an $80,000 mistake, even if it is shown over.
That is caused by subsidiaries — the dock is making money, shipping
losing money. The dock is kept up by the ships. If they put a ship on the
dock they credit it to the dock. If they put a locomotive in the
machine shop, they credit it to the machine shop. It is all one pool.
Another point, in 1939-40, shortly after the
outbreak of war, the government gave the Railway $500,000 out of the Colonial Development
Fund to build a dock at Port-aux-Basques and a
dock at St. John's. The balance of the Colonial
Development Fund still owing was wiped out by
the British government, yet I notice the Railway
is being charged with interest on a debt that has
been cancelled. I presume there is some explanation for it. I think the Railway situation
today has
to be handled with care. Let us look at it this way;
they paid $5,400,000 in wages, and 30% of that
comes back in customs duties — $1.5 million.
The Railway costs $1.75 million, therefore the
226 NATIONAL CONVENTION January 1947
$700,000 is wiped out. It is a net value to the
treasury of $1 million. If you take off the customs
duties you have to take off the $700,000. I think
that $700,000 is conservative.
Mr. Smallwood Commenting on Major Cashin's remarks, I
would like to point out that this $700,000 is only the average amount that
the government has had to pay to the Railway each year since 1923. It
is not the actual losses of the Railway at all. The loss last year was $1
million; this year it is going to be $1.5 million. Commenting on another point raised
by Major Cashin, he is right. In 1940 the
government owed the Colonial Development Fund $2,794,000 of the $4.5
million they borrowed. In 1940 the Colonial Development Fund cancelled that
debt. Included in that was an amount of $600,000 that the government
borrowed from the Fund to give to the Railway to build a paper shed and pier
at Port-aux-Basques ($300,000) and one at St. John's ($300,000). That
was included in the $2.75 million cancelled in 1940. Yet, since 1940,
the Finance Department has been collecting from the Railway the interest on
that loan. It is only an amount of between $3,000 and $4,000 and as
they have been dealing in millions, I suppose they have not paid much
attention to it. With regard to the additional cost, during the war years
they did make a profit each year. Their costs now begin to rise and
today we find the cost of wages has increased 60%, steel, coal and other
purchases have advanced close to 100%.
Mr. Jackman Have the freight rates been adjusted to meet the rising costs?
Mr. Jackman How can you have a profit if you do not
match your rates to meet the increased costs? If you are going to have
increased costs, you must have increased freight rates and increased passenger rates.
My opinion is that there is a deliberate policy
to foist the Railway on us as a white elephant, and it is going to be used
as a political issue either for confederation with Canada or
Commission of Government. If this Convention is going to resolve itself into
a dollars and cents Convention, I am going to fight it. Remember the
human element is important. It was not dollars and cents that won the war.
We won the war but we have lost the peace. I suggest freight rates and
passenger rates be increased to meet the cost. The people will pay. They are
paying the excess profit tax. We must remember it is not dollars and
cents which count, it is the credit of the country. If the Railway is losing
money, and losing it through not raising freight rates and passenger
rates they should raise them. People are going to pay, anyway.
Mr. Hillier I did not happen to be here at the opening
of this debate, but I have listened with great interest to the various
speakers and I find figures are very interesting things, but I feel as
we have a lot of reports yet to consider and if we spend so much time
debating each report, we will get through in the New Year of 1948.... The
question is, what has the government to contribute to the
Railway to keep it going? It is earning something. The Railway is a
necessity. We have to consider income and expenses, but we should be
as brief as possible in debating.
Mr. Northcott I think Mr. Jackman struck the nail on the
head. If I have 100 pounds of freight landed at Lewisporte it will cost 78
cents; if I have a carload lot, I will get it for 39 cents. If the AND
Co. has a carload lot, they get it for 16 cents per l00 lbs. I have no
money; they have. Same thing applies to Bowaters. We are giving them too big
a concession. We can pick up a lot of money there, maybe $30,000 or
$40,000 a year. The time has come when we should. It is true they own
their cars; it is also true that they pay 16 cents per 100 lbs. I think
the same concession applies to Bowaters and I think Imperial Oil are getting
their cars hauled back from Gander without charge. I do not think it is
fair. There is need of an adjustment there, and a large one.
Mr. Job Do these figures of the cost include the
profits derived from the dry dock, which must have been considerable, and
from the number of chartered steamers? We know these profits from the
dry dock and from chartered steamers are going to be reduced to almost
nothing in the future.
Mr. Smallwood For every year, 1940-45-46, earnings
means earnings from every conceivable source.... Actually during the war
$600,000 profit was made in the chartering of outside steamers. So far
as the dock is concerned the figures are here. In normal times the dock
comes pretty close to breaking even.
Mr. Job There, again, they pay duty on imports of
plating. ldo not see how they expect to be able to compete with other
places. With that extra cost
January 1947 NATIONAL CONVENTION 227
of repairs a ship will go on to Halifax for repairs
instead. It seems a very wrong system, charging on that plating.
Mr. Smallwood They charge duty only on small things and
also on ordinary maintenance materials, not on locomotives, rolling stock or
steel rails.
[The Secretary continued reading the report]
Mr. Smallwood Mr. Russell informs us that the main line of
railway has got to be re-railed — not the branch lines. But the rails which
are taken up from the main line could be used on the branch lines.
Estimated cost replacement of rail (for six years) $600,000.
[1] It was suggested to me, not by the Railway, but
by others, that this was on the optimistic side, and that it might cost more
than that.
To convert to oil will cost $1 million. They
hope to have it done before 1947 is over.... I may
say the government has not yet made any appropriation for this outlay, but it is a
definite policy
adopted by the Railway and approved by the
government.... Similarly with the steamers. They
have ordered the steamers — that's a definite
commitment, but nothing has been paid on them
as yet, and the total cost is to be $2.5 million.
Then they have to buy seven new locomotive
engines, and that will run to $445,000; freight
equipment, another $250,000; $4.2 million and
$3.6 million for rail relaying is roughly $8 million. That's capital outlay to be
made on the
railway in the course of the next two to six years.
I think perhaps that covers the section we just
read.
Mr. Higgins You say also that operating losses are
likely to increase rather than decline. Is that a definite understanding?
Mr. Smallwood Yes, because costs of materials are still
rising. Take, for instance, shipping. I understand all controls on shipping
in Canada and the United States are abolished. During the war the
shipping boards controlled all shipping, and now it has become more
difficult than ever.... The costs are still going up, and other costs are
climbing steadily. So long as they do, the losses in the operation of
the Railway must go on increasing.
Mr. Higgins Have you any estimate of what the
increase is likely to be?
Mr. Hollett That point raised by Mr. Higgins interests
me very much too. The Committee say, "Apart from capital expenditures we are
impressed by the probability that operating costs are
likely to increase rather than decline".
[2] I understood the idea of these improvements was to cut down on the
operating expense. In view of that, why are they impressed that we are
liable to get greater operating expense in the future? I want Mr.
Smallwood to understand that I am not getting up in any critical
way at all. I think your report is excellent, but there are certain things I
cannot understand, and this is one of them. Why should the Committee
say that we are headed for increased operating expenses?
Mr. Smallwood I appreciate what Mr. Hollett says, and
believe he does not rise in any critical spirit, and I am grateful to him
for his words about our report. I am acting merely as spokesman for a
Committee of ten gentlemen, one of whom is no longer a member of the
Committee, namely our Chairman, Mr. Bradley. We did work hard, there
is no question of that, and there is a tremendous amount of
knowledge here which we ourselves may not have digested
properly.... The particular question is in paragraph 4, "Apart from
Capital Expenditure, etc." I tell you one thing, for example. We have 4,000
men working on that railway. I am convinced that the standard of life
of these 4,000 railroad men must go up, not down, and that will give you
greater operating costs. I am not a railroad man, but 4,000 of our people
are operating that railway for the benefit of Newfoundland,
and I contend that it should not be operated at the expense of these men or
their families. Their first charge should be a living wage, and a
decent standard of life for everyone who is working on it, and if we agree
to that, wages must go up or the cost of living must go down. The main
point is that these men, as the men in the mills in Grand Falls and Corner
Brook and the mines at Buchans and Bell Island, working the
public utilities for the people of Newfoundland, are just as much
entitled to a decent standard of life as anyone else.
228 NATIONAL CONVENTION January 1947
Mr. Smallwood No, that's not the reason. As I have said
ad nauseam, the cost of material is still rising.
Mr. Bailey As a member of that Committee, as far as I
can find out there will be a sharp rise during the coming year, but after
that I have not the least doubt that there will be an easing of the
situation. Of course, while we were with the railroad, the negotiations for
the increased wages were not on, although we were informed that there
were rumours that it probably would come. I could not see myself where they
could keep within the bounds of what they showed us.... I know it is
very difficult to arrive at it in dollars and cents, but we could not get
along without it, and from facts and figures we received, I believe
that if something turned up along the line of railroad that would give us
another Corner Brook or Grand Falls, it would cease being a liability
and balance its books.... The bulk of the earnings are from here to Corner
Brook and Grand Falls, and from Port-aux-Basques to Corner Brook. The
rest of the railroad is a liability to the country....
Mr. Fudge Getting back to the Railway expenditure, I see nothing in the report as to the amount
of money being paid
out by the government in the way of claims and losses. I think that there is
quite a considerable amount paid in claims, and what are the causes of
these claims? Is the property being rough-handled?....
Mr. Smallwood Does Mr. Fudge direct that question at
me? In the matter of claims, this is one out of 17,598 other items. We only
examined one or two items, and that was not one of them. The total
expense is $12 million, and included in that is what they paid out in
claims. That is as near as I can go to answering Mr. Fudge.
Mr. Fudge The point I am getting at, is that if we knew
the amount paid in claims, we could deduct that from the total and perhaps
find out why that amount is being paid out.
Mr. Smallwood I would undertake to get the total figure
of claims in any particular year in which they have figured...
Mr. Figary As far as that is concerned, it is only a
few days ago we had a conference with the management of the Railway, and
they told us that
$80,000 was paid out on one terminal only of the railway last year.
Mr. Russell believes that this is due to pilfering, and he impressed on us
the necessity of having this cut out. If this is the amount for one
terminal, then what about the rest?
Mr. Fudge In View of that can you wonder that the
Railway is in debt?
Mr. Reddy Mr. Fudge's idea there about the claims on
the Railway and what it is costing is a very important question. As Mr.
Figary says, it is pilfering and I think the Railway management should
stop it. Not only pilfering, but careless management on the part of the
Railway is causing these claims.
Mr. Hollett Mr. Chairman, on page 8 of the first
appendix, which you say has been furnished you by the Railway, paragraph 3,
there is reference made to the special rates paid by certain companies....
[1]
Mr. Smallwood If Mr. Hollett will excuse me, that is in
the section we are going to read now.
[The Secretary read from page 7, Special Observations]
Mr. Smallwood Mr. Chairman, there is very little that
need be said by us about that because there is a memorandum which you will
find on your desks, sent to the Committee today by the management of
the Railway, which I think explains it. I would like here to pay
tribute to Mr. Watton, the Secretary of the Committee, who went to
enormous trouble and labour to obtain these figures from the Railway. We
were informed that the Buchans Mining Co., the AND Co.,
Shell Oil and Imperial Oil were getting special rates for hauling their
wood, paper, ore and oil, and we went to special pains to get these
figures. We got the special rates, but where we did fall into an error was
in this respect: they gave us the special carload rates, and what we did was
compare the rates that these companies get with the carload rate. What
we ought to have done was to compare their special rates not with the
carload rate but with the trainload rate. If a man gets carload rate,
the practice is for him to load and unload the car himself, but in the case
of a trainload you have a different situation altogether. Or
maybe it is the other way around, anyway the
January 1947 NATIONAL CONVENTION 229
point I am trying to make is that we compared two
things that were not comparable...
[There followed a lengthy discussion of the special freight rates charged to certain companies. The
committee rose and reported progress and the Convention adjourned]
