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Prime Minister John Key and Transport Minister Steven Joyce announced yesterday that tomorrow's budget would put $250m into KiwiRail and there would be another $500m over the next two years.
Mr Key said a plan was being worked out that would aim to turn KiwiRail into a sustainable, freight-based business within 10 years.
In the end it will cost an estimated $4.6 billion, but most of it is expected to come from profits generated by the business itself.
Some minor rail routes are expected to be closed as KiwiRail gets itself onto a firm financial footing.
Mr Hughes said the "tentative" support was to be applauded but it didn't compare with the amount the Government had allocated to major roading projects.
"Steven Joyce remains obsessed with building motorways," he said.
"The Government needs to take a long-term view of how it's cutting up its transport spend -- with the volume of freight expected to skyrocket over the next 20 years,
"New Zealand needs a balanced transport system to ensure freight is moved efficiently."
Mr Hughes said careful thought should be given to closing any regional lines because many were vital in emergencies and they were operating efficiently.
The Rail and Maritime Union (RMTU) said it was encouraged by the funding which it saw as an "apparent" commitment to keep KiwiRail in public ownership.
"The long-term plan has many important elements, including wagon and locomotive upgrades...and an investment in infrastructure to undo the neglect of 18 years of private ownership," said RMTU general secretary Wayne Butson.
The union was involved in discussions about improving productivity, although KiwiRail already had some of the most innovative and productive operating systems in the world, he said.
Auckland Regional council chairman Mike Lee said the investment was welcome but the Government should clarify its long-term funding arrangements for Auckland's commuter systems.
"We will continue working with the Government to reach an outcome but I hope my message is clear -- if New Zealand is to increase its economic productivity, our major cities must be well served by rapid rail," he said.