When it comes to the state of New Zealand’s infrastructure and the magnitude of the work required to bring it up to standard, it’s hard not to conclude that we are up against the wall. Water issues are of concern across various parts of the country, hospitals and schools in many places require significant upgrades or replacement, our roading and rail networks are in a poor state and public transport consistently struggles to meet demand from a growing and increasingly urbanised population.
We cannot free up enough land and build enough affordable houses to provide for a well-functioning housing market and significant cost overruns are expected for almost every project we undertake.
The conservative estimate from the Infrastructure Commission for New Zealand’s current infrastructure deficit is more than $200 billion. To put that in perspective, our annual GDP is around $250 billion, so the hole we have dug for ourselves is a deep one.
Sadly, there is no silver bullet to the challenges we face. We are at the beginning of a very long journey, one that even with the best planning, processes, and investment will take several decades to reach.
The way forward
While that may sound gloomy, we cannot despair because we owe it to future generations to ensure we provide for them modern, first-world infrastructure that supports world-class economic, social and environmental outcomes.
So, how do we get there? As Infrastructure New Zealand sees it, there are three steps to improve how we deliver infrastructure.
Firstly, it’s about improving planning processes and getting the structural settings right. This will provide long-term pathways and the confidence to embark on both nation-building megaprojects and the day-to-day renewals vital to our communities. The need for a clear and comprehensive national infrastructure pipeline to guide our planning is critical to this.
Not only will a pipeline help to reduce some of the unnecessary politics and inflexible ideology from infrastructure policymaking, but it will provide much-needed certainty for private sector providers who need to recruit and invest in people and equipment to undertake projects. The current stop-start nature of infrastructure construction in New Zealand leads to a loss of skilled workers overseas, where the opportunities are more predictable.
Take the Auckland City Rail Link as an example. Almost the whole tunnelling team (50 to 100 highly skilled professionals) have left and gone back overseas due to no future projects being available here. Imagine the long-term time and cost savings if we could have paired the CRL with the second Auckland harbour crossing and light rail.
Cancelling projects or stopping altogether is well within the mandate of any government, but we feel the consequences of this when we want to turn the tap on again on new projects. Confidence sags, skilled workers leave, companies reprioritise and shrink. That lost capacity and capability in the private sector then costs us a lot more time and money to bring back in an already tight fiscal environment.
Look at old issues with fresh eyes
Secondly, New Zealand must also be much more open to alternative and creative ways of funding and financing infrastructure. Because of the “constrained fiscal environment” that the government finds itself in, it cannot address New Zealand’s infrastructure deficit alone. As Infrastructure New Zealand recommended to the new Infrastructure Minister, Chris Bishop, leveraging the private sector to get infrastructure delivered faster will deliver greater benefits for the economy and society than if we rely on public funding to “pay as we go”.
Refined public-private-partnerships (PPPs) should be considered for all infrastructure projects over a certain scale. The PPP model has significant benefits, including funding flexibility that can spread costs over the life of the asset, the opportunity to recycle capital (whereby the public sector sells a concession to operate an asset and uses the upfront concession fee to invest in new infrastructure), and greater use of international expertise.
To ensure historical issues are mitigated, changes to the current commercial framework for PPPs (including risk sharing mechanisms) and a refinement of the existing PPP contractual framework are required.
Finally, it’s time to change the way we think about the role of local authorities and focus on rebalancing the relationship and powers between central and local government. Local government owns around 37% of our public infrastructure assets yet enjoys only 7% of the revenue. We can all see the chickens coming home to roost in our rates bills this year.
The establishment of city and regional deals, part of the coalition agreement between National and Act, is a way to help solve this problem in the medium-term and get the best out of central and local government’s respective strengths.
The role of local authorities
Local Government can and should be able to drive more - and it should stop behaving like a helpless child and bring positive solutions to partner with central government. City and regional deals should be long-term, provide new funding tools for local government and allow local authorities to be major deliverers, with significant new planning powers. Central government’s role, on the other hand, 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.
It was pleasing to see Bishop, who is also the Minister of Housing, recently discuss the idea of sharing the GST the government takes from the construction of new houses back to local government. Councils, which currently rely mostly on rates for revenue, should benefit more from the growth in their regions rather than just being lumped with the costs of growth.
At present, we have a lopsided model where the benefits of economic development mostly go to central government while local government bears much of the cost. Earn-back mechanisms, user pays charges and GST sharing on developments should all be considered. Bishop should be encouraged to be radical here so New Zealand gets faster housing growth, but with a more equitable funding equation for councils.
The country needs greater political alignment on the investment, development and delivery of infrastructure. With the severe challenges we currently face, we cannot afford our increasingly partisan politics to be an ongoing handbrake to progress.
That does not mean politics has no place in the infrastructure debate, but the current government has the opportunity to establish the planning, investment and delivery systems that can ensure far more consistent policy and decision-making in the future. Let’s all support them to do that.
Nick Leggett is the chief executive of Infrastructure New Zealand.
