The ‘start-stop’ cycle of our infrastructure spend

The infrastructure promises are huge but so is the wish list, Dileepa Fonseka reports.

The infrastructure spend-up announced by Prime Minister Jacinda Ardern and Finance Minister Grant Robertson at the Labour conference this weekend was greeted with jubilation by conference attendees. 

The civil contractors represented by Peter Silcock are pleased too. 

But they’ve also seen it before. 

Silcock, the Chief Executive of Civil Contractors New Zealand, can list off the occasions when the country went “hell for leather” for three years on infrastructure spending then followed it up with “nothing for ten”. 

This year several bridge projects went up for tender in Canterbury.

“Someone said to me, look we’ve gone for over a year with nothing in that sort of area up for tender and then over a very short period of time in the same week we get three tenders getting out together at the same time for similar sort of work. What do people do about that?” Silcock said.

Even the head of New Zealand’s Infrastructure Commission classifies the current demand for more infrastructure projects and spending as an infrastructure honeymoon- although the hope is the commission’s pipeline will smooth out those spikes in demand into a steady hum of infrastructure work.

The start-stop cycle of New Zealand’s infrastructure investment can be seen in data collated by economist Brad Olsen of Infometrics combining total contractor infrastructure spend across areas like housing and transport with population growth. 

Credit: Brad Olsen/Infometrics

“The graph shows that civil construction infrastructure investment over recent years has been lacking certainty compared to some previous years where more investment was pumped in.”

That lagging infrastructure spending has failed to keep up with population growth 

"The DHBs have been told for a long time to fund it out of current budgets - well, you can’t.”

Between 2008 and 2014 infrastructure spending was ahead of population growth for five years out of six but after 2014 population growth vastly outstripped infrastructure spending.

Education infrastructure was the focus of Prime Minister Jacinda Ardern’s announcement on Sunday and she was coy about naming other projects in the pipeline at her post-Cabinet press conference on Friday. 

But Sense Partners economist Shamubeel Eaqub believes health is another area ripe for capital investment given New Zealand’s spike in population. 

Demand for health infrastructure grows at a rate higher than population growth because people demand more health services as time goes on as well. 

DHB accounts show health boards have prioritised keeping waitlists down and put off maintenance, Eaqub said. 

“We haven’t really kept up with either of those things...the DHBs have been told for a long time to fund it out of current budgets - well, you can’t.”

Construction begins on Wellington Children's Hospital, primarily funded by retired property investor Mark Dunajtschik. Photo: Lynn Grieveson

Getting projects out the door

One area where the gripes over “stop-start” have reached fever pitch is the perceived pause on roading infrastructure projects in favour of public transport.

Olsen said Government spending on infrastructure had been “slow to get out the door”. 

Crown accounts data showed that, for the four months to October 2019 government capital investment was nearly $300m behind schedule, he said. 

Figures like that have led to National Transport spokesman Chris Bishop pointing the finger at the government’s transport policy and a shift in focus away from road construction.

Bishop cited 12 transport projects that were “market ready” during a speech in September along with advice from Treasury that a change in funding priorities had seen new “rapid transit” projects that would have to be designed from scratch..

Economist Shamubeel Eaqub says the choice between roads and public transport is not an either-or choice. Photo: Lynn Grieveson

The Ministry of Transport itself clarified the advice in an aide memoire to Minister of Transport Phil Twyford. They said only three of those 12 projects (Tauranga Northern Link, East West Link sections 1 & 2, and SH2 Pokeno to Mangatarata Corridor) were close to construction-ready with the others merely having one part of their process ready for tender.

“The way that we live in New Zealand it’s very difficult to see us moving to the kind of public transport utilisation that you see in many other places in the world.”

Either way, Eaqub said New Zealand had to invest in both roads and public transport. 

The attempt to completely re-orient New Zealand towards public transport was almost impossible to achieve quickly with a transport agency that had never really had such a focus before and in a country like New Zealand with “villages” rather than cities, he said.

“The way that we live in New Zealand it’s very difficult to see us moving to the kind of public transport utilisation that you see in many other places in the world.”

“We don’t really have cities right? We have villages....they’re not dense enough for public transport networks to be very efficient and effective, everything is built around the car and the motor vehicle.”

“To suddenly switch everything it’s going to take time.”

Alongside education and hospital assets, Olsen said there was an increasing need to fund local infrastructure like water treatment plants, waste and stormwater drains, and related assets. 

Councils often had plans for these ready to go, but they lacked the funds - making them ripe for a new government cash injection. 

Eaqub acknowledged local councils would struggle to meet the needs of growth in terms of local infrastructure assets like water assets in the future. 

“The local government stuff is a disaster waiting to happen.”

But he said that infrastructure problem would likely be a step too far for the Government, even with a new appetite for spending and a revised debt range that stretched to 25 percent of GDP. 

“It’s billions, but not that many billions right?”

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