Treasury said Kiwirail has been beset by troubles, including repeated breakdowns by the Aratere ferry.

A review of funding for troubled state-owned KiwiRail considered whether most of the national rail network should be closed.

KiwiRail owns the national rail network, operates freight across that network, has some rail passenger business and runs the Interislander ferry network across Cook Strait.

Treasury documents released on Thursday outline how the Government invested more than $1 billion between 2010 and 2014. Despite plans to become a more substantial freight company, revenue in 2014/15 was similar to that of 2010.

The government injected around another $200 million into KiwiRail as part of the Budget, drawn from the future investment fund, although Finance Minister Bill English expressed frustration at the continued draw on funds.

Treasury officials said that after the company conducted a lengthy review of its business, "options for the business are either relatively small scale rationalisation of the existing network... or very significant downsizing of the rail freight network, including exit".

Even in the case of limited rationalisation, Treasury said that unprofitable services should be rationalised and "some lines on the fringes of the network" should be closed.

If it decided to make larger changes, Treasury said the options were either to close "most or all" of the freight network, with the option of retaining services between Auckland and Tauranga. Passenger networks in Auckland and Wellington would also be retained.

Labour transport spokesman Phil Twyford said KiwiRail was effectively two business - freight and lines - and these should be treated differently.

"It shows Treasury don't really understand the economics of rail in the transport system," Twyford said.

While the freight business should be expected to run profitably in its own right "the lines are as much part of our national infrastructure as the roads or the water supply. You shouldn't throw economic rationality out the window but this is infrastructure for the nation".

Treasury said part of KiwiRail's struggle to improve its performance came from factors outside of its control, including the Canterbury earthquakes, the Pike river mine explosion, Solid Energy's financial difficulties, extreme weather events and the Interislander ferry Aratere being out of service for months after its propeller fell off.

"Although it is normal for businesses to have to deal with negative external problems, the magnitude and extent of those which affected KiwiRail have arguably been greater than expected."

The document said that the fortunes of KiwiRail's freight business were tied to international commodity prices, and the current trend was against it.

"It is currently transporting lower than forecast volumes of dairy products due to depressed prices, significant reductions in coal volumes as a result of the significant drop in coal prices, and reduced logging volumes also as a result of low prices."