Pattrick Smellie: Paying for 'things' versus paying for outcomes

There is a clear role for price signals in numerous other areas of infrastructure. Photo / 123RF

COMMENT:

Amid all the noise of the $12 billion infrastructure shopping list unveiled yesterday, it would be easy to ignore the New Zealand Initiative's reminder this week that pricing the use of public infrastructure very often remains vital to how well such public investments are made.

While not so relevant to the construction of hospitals or schools, where efficient procurement and contracting is more important than pricing to ration use, there is a clear role for price signals in numerous other areas of infrastructure.

The two most pressing for New Zealand are price signals for roading and other transport, and for the supply of underground infrastructure that keeps towns and cities running: the pipes that carry clean water into homes, dirty water out of them, and drain away the water that falls from the sky.

The issues are real are urgent, exemplified by the mess in Wellington's central business district, where a major arterial street is closed for months because of a failure to prioritise replacement of ageing wastewater infrastructure adequately. Across town, a small army of trucks transports sludge from the city's wastewater treatment plant to a local landfill because of a separate treatment system failure.

Government estimates suggest drinking water upgrades, required in the aftermath of the Havelock North water supply poisoning, will run to a total cost of between half a billion and a billion dollars, much of it to be borne by local councils rather than central government.

The bill for wastewater and stormwater fixes is even more eye-watering, at an estimated cost of between $3b and $4.3b, almost all of which falls on local councils. They will need more than just the existing rating system to afford such massive and essential upgrades.

After all, this is the urban side of the bargain with the farming community, which is starting slowly to face a range of price-based and regulatory pressures to improve both water quality and, through the emissions trading scheme or its proxies, their greenhouse gas emissions.

Using Auckland's Watercare as a model - it has been charging Aucklanders for years now based on their actual water use - the whole country needs to move to a system that creates price-based incentives for efficient water use.

Sadly, in many areas, the politics will play out as tired bleating about the evils of 'user pays'.

The reality is that clean, drinkable water flowing out of the taps is an out-of-sight, out-of-mind expectation that most water users no longer see as an expensive and valuable benefit of modernity that our ancestors could only have dreamt of.

Likewise, decent wastewater treatment is a non-negotiable public health and environmental necessity that costs billions to build and maintain over generations and needs financing and pricing mechanisms that don't lead to failures such as those plaguing the capital city.

The announcements before Christmas of new ways to allow local government to raise funds for such investments and to ensure the costs are spread over their inter-generational lifetimes are important step along the way to paying for infrastructure needs that yesterday's announcements didn't cover.

Also driving in this direction is legislation currently before Parliament to empower an Urban Development Authority to charge so-called 'value capture' rates on new urban developments where private property values rise because of their proximity to major new public transport and other infrastructure.

It remains to be seen how Aucklanders living in new, high-density housing along newly built light rail or rapid transit routes will feel about these value-based rates when they kick in. But such a system is essential to a more rational approach to the shared costs and benefits of urban growth and regeneration.

The focus of the NZ Initiative's report was congestion charging: the use of variable toll rates to discourage the use of urban roads at times when they get choked.

The previous government was broadly supportive but took the view that the digital technology to implement congestion charging was still some years away.

That was politically convenient, since the ability to call a congestion charge "another new tax" is obvious, even though such charges should ideally replace existing flat-rate petrol taxes so that they only apply to people driving in the wrong place at the wrong time instead of every motorist.

This is the crucial distinction between congestion charging and existing road user charges and petrol taxes.

The purpose of RUCs and petrol taxes is to fund roading and other transport developments whereas the purpose of congestion charging is to change behaviour.

The current government is also, in principle, supporting congestion charging – along with a variety of other incentive-inducing charges in other areas.

Transport Minister Phil Twyford. Photo / File

But Transport Minister Phil Twyford has been adamant for years that it would be unfair to impose congestion charging when thousands of commuting Aucklanders currently have no choice but to drive their own cars across the city every day to get to and from work.

Only when the government finally makes some progress on light rail and other public transport initiatives will congestion charging become politically feasible or fair.

Yet decisions on those huge commitments are not among those announced yesterday. The soonest a light rail decision will get to Cabinet is early March, and Twyford is saying only that light rail will be running by 2030.

Yesterday's infrastructure shopping list may be no bad thing. But, as ever, sophisticated policies that would help drive better economic, environmental and social outcomes involving our most expensive public assets, are on the slow burn.