We are also starting to experience the significant impact of climate change — affecting communities right across the country through severe storm events, flooding, rising sea levels and droughts.
Decades of underinvestment in infrastructure have left us with a significant infrastructure deficit — around $210 billion.
How will we cope with these extra people and the pressures that climate change will put on our infrastructure?
Aotearoa needs sustainable funding and financing of infrastructure
Fundamentally, our current approach to funding and financing infrastructure is not working. Today, we are spending around 5.5 per cent of New Zealand’s GDP on building public infrastructure.
To meet the identified infrastructure deficit, this would need to increase to nearly 10 per cent of GDP or $31b annually. So, what is holding us back?
When we do invest, too often our critical infrastructure projects, or large programmes of work, are identified without a robust funding plan. It’s hard to argue about the strong need for infrastructure, but who pays is often left unanswered while a quest for more government funding from one of the many capital funds is explored.
Councils themselves are also often struggling with debt ceilings and unaffordable rates.
The very nature of some infrastructure challenges also relates to political ideology.
Transformational infrastructure projects, such as Auckland light rail or the new mass transit system proposed for Wellington, run the risk of having the funding artery cut due to the lack of bipartisan support. Short-term investment decisions tied to political terms do nothing for New Zealanders. They impact on the international credibility of our industry as well as public confidence.
A lack of a sustainable and certain pipeline of infrastructure projects is also stopping our construction and development sector from growing. Without this pipeline, the sector is unable to gear up the necessary talent, capacity and equipment to deliver the infrastructure this country so desperately needs.
We need to better consider innovative solutions and approaches to ensure a sustainable pipeline. This sustained infrastructure investment is vital to improve our quality of life and allow us to remain internationally competitive as a country. We must ensure we are getting the most from our existing infrastructure, and future-proof with resilience, our new projects.
We have made some progress with Te Waihanga/The New Zealand Infrastructure Commission playing an important co-ordination role in establishing and publishing our first national infrastructure pipeline. But this is just the start, and we have a long road ahead of us.
We have the tools, so why aren’t we using them?
Part of addressing this problem is about finally using the broad range of funding and financing tools available now.
Legislation collecting dust
In August 2020 two pieces of legislation were passed: the Infrastructure Funding and Financing (IFF) Act and the Urban Development Act. It has now been over two years, and what is there to show for it?
The Infrastructure Funding and Financing Act sets out pathways for local authorities to finance infrastructure projects in a way that does not impact council balance sheets. It allows debt finance to be raised from the private sector and ring-fenced from a council’s balance sheet.
The Act passed with support from all political parties in parliament at the time.
When asked in April this year, Dr Megan Woods, the minister responsible for the legislation stated that: “Infrastructure projects are complex and require significant upfront work prior to IFF Finance being committed”. She explained that “this upfront work includes things like planning, design, consenting and land acquisition which can take between 12-24 months to complete, so this does take some time.”
Woods went on to say that she was expecting three proposals this year from Wellington and Tauranga.
However, as we shift towards the end of the year, there has only been one proposal to use a levy submitted. Others are still in the development phase, or the approach has been parked.
Even the Infrastructure Commission’s strategy recommended that central government needs to investigate opportunities to utilise the Infrastructure Funding and Financing Act 2020 and explore other Special Purpose Vehicles as a mechanism for new infrastructure investments.
It is now more than two years since the legislation passed. Will we ever see this act being used? What is the barrier to utilising this innovative piece of legislation?
Is it the complexity of the legislation or risk aversion to being the first starter? Is it just easier to keep tracking along within our existing funding constraints and continuing to expect a magic pot of gold from central government instead of being masters of our own destiny?
Private capital waiting in the wings
As a country, we also steer away from the use of private capital, under-utilising the private sector’s skills and capacity to deliver infrastructure.
A greater partnership approach between the Government and the private sector would enhance delivery capability and help transfer appropriate key risks of deliverability to the private sector as well as the ability to implement multiple infrastructure projects simultaneously.
New Zealand runs the real risk of being left behind.
Other countries already make it easier to invest and have more certainty in their planning system which allows a flow of expertise needed for the complex infrastructure projects our modern societies require to function.
An overriding fear in Aotearoa, that the Government (and you and I as taxpayers) will be ripped off by the super profit-making multinationals can be addressed by employing international best practice of transparently agreeing investment return up front.
But again, what is stopping us? What is holding us back as a country from leveraging this capital?
Our risk aversion is costing us as country
Not committing, and not taking some risk, is not saving us money. The infrastructure projects we desperately need to support our communities are never going to be any cheaper. By delaying, society is already paying a substantial cost every year with nothing to show for it.
As outlined in Infrastructure New Zealand’s recently released report Great Decisions are timely, there is a quantifiable cost of delay. As a country, we are not saving money by being cautious, and constantly delaying and reworking business cases.
The report found that delays to the Waikato Expressway have led to a minimum forgone benefit over seven years of about $2.3b or $334m per year. To put into context, that figure is almost equal to the total Climate Emergency Response Fund for transport, energy and industry in the 2022 budget. The forgone benefits of earlier completion would have been 1.2 times the total capital cost of the project which was $1.9b.
Simply put, our decision-making is costing us greater infrastructure investment.
A step change is needed
Now is the time to truly be bold and try new things. We know our approach in the past has not worked, and we need to do things differently.
Part of this is driving innovation and diversity of thought. We have new funding and financing tools, and we know there are opportunities with private capital, so let’s start making progress and set Aotearoa on the path to a much brighter 2050.
- Michelle McCormick is policy director at Infrastructure New Zealand. Infrastructure New Zealand is an advertising sponsor of the Herald’s Infrastructure report.
