The Government admitted it paid a premium price to buy back the former state railway company, and says further huge investment will be needed in the newly named KiwiRail company.
But Prime Minister Helen Clark justified the deal, saying rail could not have survived without substantial Government subsidies.
She also cited the fuel efficiencies rail offered freight haulers over road, saying these would lessen the "carbon footprint of our transport network" and take trucks off the road.
One locomotive could pull as much as 65 trucks could carry, she said.
The Government paid Toll Holdings $690 million for its company, $25 million more than was announced in May.
The extra covers transition costs such as payments to senior Toll staff to stay on and help in the handover to new owners.
The Government has renamed the company KiwiRail, following the pattern it set with the state-owned Kiwibank and the Government-subsidised retirement savings scheme KiwiSaver.
Former National Prime Minister Jim Bolger accepted the role of chairman of the board in a move that has stung National, which opposes the deal, and angered New Zealand First leader Winston Peters.
Mr Peters made a rare criticism of Finance Minister Michael Cullen yesterday over the appointment because Mr Bolger headed the Government in 1993 that sold New Zealand Rail to a private consortium, including Fay Richwhite.
Dr Cullen said at least $80 million would have to be spent over five years on KiwiRail rolling stock.
But he suggested that the cost would be more than this.
He would be taking a paper to the Cabinet in a few weeks with a "longer term, more aggressive investment programme".
That is thought to mean an investment plan for hundreds of millions, if not billions, of dollars that would need to be raised by borrowing.
It's separate from the $400 million already earmarked for a five-year upgrade of the tracks, which the Government bought back in 2003 for $1.
Pressed by Mr Key, who accused the Government of paying too much for the latest acquisition, Dr Cullen said: "There is no question the Government has paid a premium price.
"But the alternative is continuing to subsidise a foreign-owned company failing to invest sufficiently in basic infrastructure, increased expenditure required on roading, increased accidents on the road, and increased greenhouse gas emissions at a direct cost to the taxpayer."
On Mr Bolger's appointment, Mr Key has said he was glad to have someone strong at the helm of KiwiRail, but it would not stop National holding the Government to account over the costs.
Mr Bolger acknowledged the irony in him accepting the job of heading the company he sold in 1993.
"My life is full of ironies."
But he said life was dramatically different from 1993. One difference was that oil was then US$25 a barrel and was now about US$150.
He hoped that if National became the Government it would invest heavily in KiwiRail.
It was very clear the system had been under-capitalised for many years.
"If there is any regret I see looking at it from the time it was in private hands ... it is that the capital injection necessary to maintain a modern rail system hasn't happened."
Mr Bolger, who also chairs NZ Post and Kiwibank, will be joined on the board by Brian Corban, Mark Franklin, Ross Wilson, Brian Jackson, Linda Constable and Ross Martin.
Yesterday's announcement is the first of two big Government moves this week that Labour will hope gives it momentum to close in on National before the election.
An announcement on a new tertiary institution in South Auckland is expected tomorrow.
* What the money bought
Through its Ontrack company, the Government already owns the rail system, which includes 4000km of track, six million sleepers, 1787 bridges, 150 tunnels, 12,000 culverts and signalling infrastructure including points, railway level crossing alarms, electrification and communications systems.
Ontrack also controls the trains on the network. It has a staff of 900.
After yesterday's sale, the Government, through the KiwiRail company, will also own 180 mainline locomotives, 4200 wagons, two railway workshops - in Dunedin and the Hutt - one rail ferry and leases on two other ferries.
The company employs about 2300 people in its rail and ferry operations.