Budget 2023: Can the Govt deliver on its infrastructure investment plans?

Finance Minister Grant Robertson has faith the whopping infrastructure spend won't be inflationary. Photo / Marty Melville

Prime Minister Chris Hipkins is confident capacity can be created in the economy to get all the money allocated to infrastructure via the Budget out the door – eventually.

Finance Minister Grant Robertson in December foreshadowed increasing the Crown’s multi-year capital allowance by $12 billion in Budget 2023. This was seen to be a hefty increase.

Nonetheless, he ended up expanding the allowance by a whopping $20.5b, including $6b ringfenced for a National Resilience Plan.

BNZ head of research Stephen Toplis said it would be difficult, but not impossible, for the Government to get all that funding out the door – particularly if it wants to do so over a short period of time after the impact of Cyclone Gabrielle.

He noted the construction sector was also already grappling with capacity constraints.

Civil Contractors New Zealand chief executive Allan Pollard said the cyclone had exposed the country’s shortage of both skilled and unskilled workers.

While immigration has rebounded strongly following the peak of the pandemic, Pollard believed settings weren’t supportive “at all”, as it was still proving to be a struggle to plug gaps in the civil construction sector.

Nonetheless, Hipkins said that because the rise in capital expenditure is spread over a number of years, a predictable pipeline of work can be created.

“Businesses will scale up, they will invest in upskilling people, they will invest in making sure they’ve got the workforce that they need,” he said.

Robertson was confident that because this investment would take place over a long period of time, it wouldn’t be particularly inflationary.

“You have to look at the quality of the spending and how the spending happens,” he said, noting that investment in infrastructure is “productive” spending.

While Toplis said there was a question mark over whether the Government could achieve what it wanted, he believed it shouldn’t push pause on doing what’s required because of the inflationary environment.

On the upside, he also noted plasterboard, steel and timber prices were falling.

Infometrics chief executive Brad Olsen also pointed to the inevitable lag between allocating money towards capital investments and actually spending it.

“You still have shovel-ready projects announced in 2020 that are only starting to get going now,” he said.

However, he echoed Hipkins’ sentiment that the private sector could scale up according to the amount of money the Government was putting on the table for investment.

He noted significant investment in infrastructure, including housing, would keep the sector buoyed at a time when it’s grappling with higher costs and interest rates.

Toplis also recognised this counter-cyclic effect government investment could have, saying it might be more pronounced on the residential property side of things.

Olsen concluded the challenge now is doing the planning to enable the money to get out the door quickly.

“Too often I think we have a stop-go, stop-go system in the infrastructure space where there is money that is promised, but not able to be executed and delivered at the right time, and that clogs up all the future commitments that are coming forward,” he said.