The provision of new roads such as the Hamilton Ring Road brings about social and environmental benefits alongside increased economic activity.
New Zealanders are expecting a lot from the new Government when it comes to the delivery of infrastructure. Not only must it produce significant improvements in the short term, but it must also establish the mechanisms for sustainable infrastructure delivery over the next 30 years.
Neither task will be easy, but if New Zealand is to prosper economically, socially and environmentally in the 21st century, then Christopher Luxon and his Government must succeed.
We know the problems; we can all see them in our communities. Public infrastructure, such as schools and hospitals, is ageing and struggling to meet the needs of a modern society. Transport infrastructure, whether it be public transport in our cities or the roads that link the country together, have not kept pace with a growing population. Much of our three waters and underground infrastructure has been neglected for decades and regularly fails in some parts of the country. Additionally, the means to provide higher-density, affordable housing in our cities remains unresolved.
The conservative estimate for this infrastructure deficit is over $200 billion. To put that in perspective, New Zealand’s annual GDP is currently $250b, so it’s a big number and a multi-generational challenge.
The good news for the new Government is that New Zealanders are on-board with the need for greater investment in infrastructure. Polling Infrastructure New Zealand undertook earlier in the year indicates 70 per cent of people do not think New Zealand has invested enough in infrastructure over the past 10 years. The conversation therefore turns to how do we plan, fund and deliver the infrastructure we need.
The new Government must corral the complex web of public sector organisations involved in infrastructure delivery by following through on the National-New Zealand First Coalition Agreement and establishing and properly empowering a central government infrastructure agency.
This agency should be tasked with co-ordinating central government’s infrastructure planning, fast consenting, and co-ordinating funding and investment, all of which will ultimately improve government as an infrastructure client.
This central government infrastructure agency can act as a system steward actively promoting accountability and cross-entity collaboration by taking a leadership role in the system as a whole.
It can achieve better governance, greater use of partnerships with local government, iwi, communities and private sector, and better decision-making, including accounting for long-term societal benefits.
It is estimated that to clear New Zealand’s infrastructure deficit will take $31b in investment each and every year for the next 30 years. No matter how we prioritise government spending or are committed to direct government borrowing, there is no way central government can fund this on its own. Consequently, partnerships that utilise private capital will become critical.
Infrastructure New Zealand is recommending that the new Government takes immediate action to encourage such partnerships. This should be done by:
The public-private partnership (PPP) model can be redesigned to include better risk-sharing and a re-basing mechanism for affordability thresholds. Other models of private financing must also be considered. These include leasing arrangements where the public sector oversees project planning and maintains ownership of assets and land, and the use of soft loans, which worked so successfully in the rollout of ultra-fast broadband.
Expanding the current national infrastructure project pipeline will also be critical. Currently the pipeline includes around $96b worth of infrastructure projects, the majority of which are planned for the next three to five years. To enable the infrastructure sector to expand with confidence the new Government needs to expand this pipeline decades into the future.
This will enable far better planning, longer timeframes to secure investment and the ability for infrastructure providers to build up capacity and capability.
The current boom-bust cycle, where periods of intense activity are followed by uncertainty, not only leads to a loss of skilled workers to overseas opportunities but is also inefficient and expensive.
Analysis that Infrastructure New Zealand released in October suggests a more certain infrastructure pipeline could lead to productivity and savings improvements of between $2.3b and $4.6b per year through to 2031.
The overall result of this is somewhere between $16 and $33b extra to spend on infrastructure investment during that time, the equivalent of 10 to 20 Waterview Tunnels.
New Zealand is ranked in the bottom 10 per cent of OECD nations where it comes to getting value from our infrastructure spend, so there is significant opportunity for the new Government to make improvements here.
When it comes to specific projects Infrastructure New Zealand wants to see in the pipeline, projects that will enhance our resilience to climate change and maintain essential services must be front of the queue.
Lloyds of London recently ranked New Zealand second only to Bangladesh for its vulnerability to natural hazards in terms of average annual losses compared to the size of the economy.
Mitigating this will take a massive joined-up effort by central and local government, both in the provision of new infrastructure and the upgrade of existing infrastructure.
We will also need to be very realistic about our changing world. Some hard conversations will need to take place as we may need to accept the permanent loss of infrastructure in some parts of the country. For instance, is it prudent to fully rebuild a road that will continue to be washed away?
Right across the country, communities are experiencing severe local government rate increases and it is obvious that current local government funding arrangements are not incentivising delivery of world-class infrastructure.
It’s time to change the way we think about the role of local authorities and fundamentally rebalance the relationship between central and local government.
We see the establishment of city and regional deals, as set out in the National-Act Coalition Agreement, as a means to help solve this problem. To be successful, these deals must be long-term and provide new funding tools for local government and allow local authorities to be major deliverers, with significant new planning powers in transport and housing. Central government’s role will be to develop the deals into a nationally coherent, high-level plan and provide the necessary oversight, investment pathways, co-ordination and expertise to ensure project delivery.
How will the new Government know it has been successful?
The system will deliver us more for less, and the infrastructure market will have the confidence to grow its capability and therefore the capacity to deliver an increased pipeline. Better still, when governments change, the system will be trusted by successive administrations.
In considering the relationship with local government, it will also be up to the new Government to move us past the current debate over co-governance and the centralisation of water management and institute a system through which water infrastructure can be adequately funded. This can be achieved by separating the assets from council balance sheets while maintaining a form of influence acceptable to local communities.
It is often said that infrastructure can be the driver of our economic recovery, but the reverse is also true. Poor decision-making and an overly risk-averse public service can see projects delayed or poorly executed. This can lead to significant negative economic impacts.
If we take the Waikato Expressway as an example, a project that went through long delays and took 40 years to complete, estimates suggest that if it was delivered on time, it would have provided an additional $2.8b of economic activity to New Zealand.
Infrastructure New Zealand sees the delivery of modern, right-sized infrastructure not only as a means of economic stimulus but also as a means of providing social and environmental prosperity to our communities. Examples such as schools, hospitals, and wastewater services clearly demonstrate this.
Even the construction of a new road, while enhancing economic productivity by facilitating the smoother flow of people and goods, brings about social and environmental benefits by creating more efficient, safer connections within and between our communities.
Infrastructure is inherently risky and long-term, which is why we must build up the skills across our economy, both in the private and public sectors, to ensure we possess the required knowledge and expertise to reduce the risk. The new Government must lead the way in meeting this challenge and in doing so will enjoy the full-throated support and active partnership of New Zealand’s infrastructure industry.
OPINION: Tensions are likely to become more evident next year.