Politics

Govt in the dark on infrastructure threats

The Government hopes its new procurement and planning agency will help it navigate its way out of the infrastructure hole, Thomas Coughlan reports. 

Infrastructure Minister Shane Jones told yesterday's Building Nations Symposium that when the Government took office, it discovered officials and Treasury had no clear plan or idea for how to fix the country's ageing and inadequate infrastructure.

It knew it would be facing big spending demands to replace ageing school, hospital and prison buildings; improve road and rail; and create new transport infrastructure. But exactly how much capital spending was potentially coming down the pipeline to strain the Budget, and how long it could be put off, was unclear.

“We’ve struggled to get a clear picture from officials of its scale, when it would hit us the worst and in which sectors,” Jones said (arriving late to the podium, dressed in a hi-vis jacket).

“Treasury is currently unable to properly quantify the value of the deficit we’re facing – it doesn’t hold accurate or up-to-date information about all infrastructure projects across all sectors and advises that agencies themselves may not necessarily know the extent of their future capital needs,” he said.

The new infrastructure agency is intended to more accurately identify the extent of the current infrastructure deficit and what is needed to plug it.

The announcement of the independent entity was widely anticipated: Finance Minister Grant Robertson joked it was “becoming the worst kept secret in politics”.

Broad support

The new agency was immediately welcomed by the Employers and Manufacturers Association and Infrastructure NZ.

EMA CEO Kim Campbell welcomed an agency with “mandate to pull together the long-term pipeline of our infrastructure needs”.

He hoped that, as an independent entity, it would help Governments make decisions that transcended the electoral cycle.

Infrastructure NZ CEO Stephen Selwood said similar organisations had worked well in the UK and Australia.

The National Party also issued a cautious welcome to the agency, noting that it campaigned on a similar proposal during the election.

But infrastructure spokesperson Jami-Lee Ross said that there was no certainty on whether the Government would back away from its “ideological” opposition to Public Private Partnerships (PPPs) for hospitals and prisons in order to plug the deficit.

“This Government needs to be clear about whether they are actually willing to work with the infrastructure sector to deliver projects for New Zealanders,” Ross said.

Not a new Ministry of Works

Jones and Robertson were quick to signal that the new agency would not be a new Ministry of Works & Development, the Government department responsible for major public construction projects until it was disestablished and privatised in 1988.

Currently, procurement and planning is managed by individual ministries with oversight from Treasury.

This new agency would take this role away from Treasury.

It is expected to launch next year after Treasury has provided the Government with options for how it might be structured.

Jones said recent trips to Australia had shown him “independent voice offering a qualitative opinion on infrastructure to central Government genuinely has its merits.”

Big deficit, little spending

Jones told the conference the planning issues facing the Government were highlighted when it became clear Treasury was unable to quantify the value of the infrastructure deficit.

“I don’t have accurate or up to date information about all infrastructure projects across all sectors and Treasury advise that agencies themselves don’t necessarily know the extent of their future capital needs,” Jones said.

In spite of record population growth, public and private spending on infrastructure was flat between 2015 and 2017 according to MBIE.

In April ANZ released data showing new capital spending for each 1,000 additional people fell from $142 million in 2011/12 to just $37m in 2016/17.

The Government has made repeated commitments to tackling the infrastructure deficit. Robertson confirmed $42 billion in capital spending in March.

Jones noted today this was five times the spending of the previous Government over the last five years.

But most commentators, including ANZ Chief Economist Sharon Zollner, don't believe the Government will be able to plug the deficit without breaking its strict, self-imposed debt rules. 

Zollner told interest.co.nz in May the bank believed "an argument can be made for increasing near-term debt targets for the purpose of growth-enhancing infrastructure spending”.

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