Infrastructure

An infrastructure honeymoon with not enough action

An infrastructure "pipeline" announcement arrives as the consensus around the need for more infrastructure has never been stronger, Dileepa Fonseka reports

Nobody believes New Zealand has enough infrastructure.

Not Infrastructure Minister Shane Jones (who thinks “we’re playing catch-up rugby”) nor his opposite number in the National Party Chris Bishop who complains the Government should just be “getting on with the job and putting spades in the ground”, nor economist Brad Olsen who warns: ”New Zealand has an infrastructure deficit but we don’t seem to be as willing - yet - to address it.”. 

“I think we’re probably in a bit of a honeymoon period on that at the moment.”

It’s a consensus on the need for more infrastructure projects and more spending that Infrastructure Commission chairman Alan Bollard openly acknowledges.

“I think we’re probably in a bit of a honeymoon period on that at the moment.”

“But as I say we’ve got to be realistic about what can be done.” 

The month-old Infrastructure Commission released an infrastructure ‘pipeline’ document on Tuesday morning detailing 500 “credible” infrastructure projects - a third of them in the area of transport - with an estimated collective value of $21.1b. 

“There’s a strong view from the construction sector that they could get prices down if they could get more certainty about the pipeline in coming years and they’d be prepared to gear up considerably.”

Infrastructure Minister Shane Jones believes the country is playing "catch-up" on infrastructure issues. Photo: Lynn Grieveson.

The commission is a crown entity that sits outside the Government, and its list of projects was compiled from details sent through by government agencies, local councils and council-controlled organisations.

Left off that list are some of the big transport promises that have dominated column inches this year like light rail in Auckland and Wellington. 

If projects didn’t have at least a preliminary business case they didn’t get a listing, Bollard said. 

“They had to be able to be able to give us credible information on likely timelines and credible costing information.”

“There’s one or two big items that there’s still a lot of discussion about in the media that haven’t really got to that stage.”

Population growth not ‘major driver’

New Zealand’s higher than expected population on its own has been a spur for politicians like Jones to demand more infrastructure but Bollard said he didn’t believe it had been a major cause of the country’s infrastructure woes. 

“I think we’ve had slightly higher population growth than we had expected but I don’t think that, in itself, is a major driver.”

New Zealand had an ageing population across much of the country accompanied by strong population growth in the Auckland region that was spilling out into surrounding areas - the different age structure affected infrastructure demands more, he said.

“It does make a difference what the age structure [of the population] is and how many young people are looking for new households of establishment compared to old people.” 

National MP Chris Bishop wants to see more "spades in the ground" on infrastructure projects. Photo: Lynn Grieveson.

An ANZ report released last year looked at infrastructure spending per additional 1,000 people added to the country’s population and found that - since 2012 - the country’s infrastructure spending had fallen markedly by this measure.

Olsen said while it was worthwhile look at increases in infrastructure spending overall it was also worthwhile to look at it in relation to population growth.

“We can always build more [infrastructure]...but if we’re currently not meeting the needs of our community, and we’re not going to be able to meet the needs of our future community, is it a good story?”

The commission has the power to demand information from authorities on any infrastructure project above $50m and provide independent advice to the crown.

But Bollard said it wouldn’t be using those powers to wade into the politics of migration policy: 

“That’s entirely for the Government, we wouldn’t see that it’s our job to do that. There’ll be migration and population policies and we’ll respond to them.”

Debt

Neither is the Infrastructure Commission likely to suggest the country takes on more debt to fund additional infrastructure. 

Before the election the coalition Government committed to National’s target to reduce net debt to 20 percent of GDP - and achieved it two years early. 

Since then it has indicated it is ready to increase infrastructure spending to help the Reserve Bank to boost the economy, and inflation, now that interest rates are close to zero percent. 

Former Reserve Bank Governor Alan Bollard says it is hard to use infrastructure builds as a short-term fiscal stimulus for the economy. Photo: Lynn Grieveson.

Bollard, a former Reserve Bank Governor, counters that it is difficult to use infrastructure to boost the economy in the short-term to counter a slump.

“If you look on this pipeline you’ll see about $700m worth next year moving from business case to procurement, but that’s still a year away from actually getting the work underway.”

“That means it’s inevitable on a lot of investment projects that there’s still going to be a time lag before you can actually start spending money and putting stimulus through the economy.”

... the commission wouldn’t encourage the Government to take on more debt to fund new infrastructure but would instead put forward alternative models for funding like public-private partnerships, special purpose vehicles and user-pays.

Olsen said New Zealand had low borrowing costs but also had problems with the capacity of industry to build infrastructure.

The Infrastructure commission will develop a pipeline of projects spanning 30 years - in theory providing a level of scale to New Zealand’s infrastructure works that will allow infrastructure firms to scale up their operations too.  

Bollard said the commission wouldn’t encourage the Government to take on more debt to fund new infrastructure but would instead put forward alternative models for funding like public-private partnerships, special purpose vehicles and user-pays.

“There are opportunities there...we just need to be very clear about what the implications for whose paying for these things: is it current taxpayers, is it ratepayers [or] is it users?”

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