Fares please! An economic history of the Melbourne & Metropolitan Tramways Board

Financial summary

The graph below shows the fundamental elements of the financial history of the M&MTB. The first phase, during the 1920s, was characterised by the depreciation of the entire cable tram system and much of the pre-M&MTB tramway trust infrastructure, whilst the business still generated strong returns on capital. Government equity declined from just under 70% to just under 30% by extensive borrowings to fund the conversion of the cable tram system to electric traction, and the expansion of the electric system.

M&MTB financial results. Source M&MTB M&MTB financial results 1919-20 to 1981-82.
Source M&MTB.

This financial strategy ceased by the onset of the Depression, with marginally negative returns on capital. The M&MTB then embarked on a conservative financial strategy by restricting borrowings, and as business conditions improved with a corresponding revival of positive returns on capital, government equity in the organisation increased steadily throughout the 1930s and 1940s until it recovered to around 60%. The final act of Bell as Chairman in 1948-49 was to massively increase government equity to over 80% by retiring debt, generating a temporary negative return on capital.

The Risson era was characterised by funding of operations by borrowings, running down government equity in the business to just above zero in 1969-70, together with consistently negative returns on capital, worsening the overall financial situation of the M&MTB.

The final phase of the M&MTB saw the acceleration of negative returns on capital, due to the ever increasing need to fund operations by borrowings and government subsidies, with equity in the business oscillating around zero. This phase was the natural extension of the failure of management to turn around the operating conditions of the Risson years. The business was bankrupt and was only kept afloat by government subsidy.

This lifetime financial outcome for the M&MTB is based on payments to/from Consolidated Revenue (including disbursements to municipalities and government subsidies) plus annual surplus/deficit.

Note that no figures are available for the 1982-83 financial year as the annual report was never produced.

M&MTB was in profit for the financial years:

  • 1919-20 to 1928-29
  • 1932-33 to 1946-47
  • 1950-51
  • 1952-53

Lifetime balance sheet:

  • Losses from 1919-20 to 1969-70 = $ 14,409,252
  • Losses from 1970-71 to 1981-82 = $311,592,345
  • Total loss from 1919-20 to 1981-82 = $326,001,597

Total capital invested 1919-20 to 1981-82 = $183,803,761

Gross capital value 1981-82 = $96,658,947

Return on capital = 124% loss