New Zealand is also playing infrastructure catch up and the Government has a massive challenge to urgently address historic underinvestment.
While strong population growth has increased the Government's tax take, public and private infrastructure spending has been flat in nominal terms over the past two years.
According to MBIE's recent National Construction Pipeline Report, infrastructure investment projections are dramatically down from 2017 and are set to flat line over the next five years.
The question is how to manage infrastructure investment and planning through a bumpy and changeable political environment.
With New Zealand's short three-year political cycle, projects are halted and reviewed each time a new Government takes office, adding months and even years on to timelines of projects that are eventually approved.
The Waikeria Prison expansion and Waterview Tunnel are good examples.
This is highly inefficient and we must adopt a model so that inter-generational assets can progress notwithstanding our electoral cycle.
Māori have always adopted an inter-generational approach to their decision making — the rest of the country would do well to take a leaf from their book.
Today, we have a National Infrastructure Unit, however its recommendations aren't always adopted.
Planning capabilities in Government departments could also do well to lift to the robust, national long-term planning levels we are now seeing with local government.
An independent infrastructure body that provides strategic advice to Government and helps build support for bi-partisan projects through strategic long-term planning could be a solution.
As advocated for by Infrastructure New Zealand, it would be arms-length from Government and provide advice for how to best structure and procure projects, off or on balance sheet.
Its procurement specialists could provide advice for how to best deliver projects. It would then be up to the Government of the day to decide how it is funded.
Public-private-partnerships (PPPs), are not the only model, but have been successful in engaging the private sector and should remain an option for their efficiency, risk sharing and whole of life saving benefits.
An independent infrastructure body has been successful in political systems like ours — Australia, UK and Canada — where they've helped Governments deliver complex infrastructure projects and limited the risk of cost blow outs.
For instance, in Scotland the Government must publicly state why it won't follow the recommendations of Scottish Futures Trust. This would go a long way to prevent objections to infrastructure or procurement methods on pure ideology and tendency for each Government to focus on their "pet projects".
However setting up such an independent body at arms-length from government has a downside. It means the Government of the day could find it difficult to respond urgently to a project that may be a high priority for the public but makes little sense financially or when compared with other initiatives.
Another area the Government is undoubtedly considering is the task of balancing critical infrastructure spend with fiscal responsibility targets — with a publicly quoted target of net Crown debt at 20 per cent of GDP within five years.
The Government does have a sizeable pipeline of infrastructure spending budgeted, but there are several areas, including hospital and schools, where urgent repair is required.
That, as well as general maintenance of infrastructure, is estimated to cost an additional $10 billion, which won't necessarily add to the productive potential of the economy but is essential to at least maintain productivity at current levels.
Given all this we could be increasing near-term debt targets to fund critically important infrastructure while the Government books are in good form and interest rates are low.
Unlike borrowing for tax cuts or social spending, borrowing for infrastructure is an investment in future economic growth.
The IMF finds infrastructure spending is more effective than other fiscal spending in terms of delivering GDP growth dividends.
We believe that increasing debt, be it from Government or the private sector to fund infrastructure makes sense as long as pragmatism is applied, it is spread across the country (not just Auckland) and projects are phased appropriately relative to capacity constraints.
Building a robust pipeline of infrastructure projects begins with rigorous planning, however ensuring critical projects are prioritised requires advice from an independent body.
We'll be much better served by our infrastructure investments by removing the politics and listening to expert opinion on funding mechanisms, be it public or private capital.
The relaxing of Government debt targets will also help spur more investment now.
These are ideas worth considering so we move out of infrastructure catch up mode and into investments which are future-proof and capable of handling a growing country.
● Paul Goodwin is Managing Director Institutional NZ, ANZ
