Moving NZ’s infrastructure out of catch-up mode

It shouldn’t be this way. But investment in infrastructure in this country has always been captive to a lack of long-term thinking. 

"NZ must adopt a model so that inter-generational assets can progress notwithstanding our electoral cycle.”

The current debate over the Central Rail Link is a good example. This unfortunate Kiwi tradition of not wanting to gold-plate infrastructure goes back to the construction of the Auckland Harbour Bridge and beyond.

NZ is also playing infrastructure catch up and the government has a massive challenge to urgently address historic underinvestment. While strong population growth has increased the government’s tax take, public and private infrastructure spending has been flat in nominal terms over the past two years.

Flatline

According to the NZ Ministry of Business, Innovation and Employment’s recent National Construction Pipeline Report, infrastructure investment projections are dramatically down from 2017 and are set to flatline over the next five years.

The question is how to manage infrastructure investment and planning through a bumpy and changeable political environment.

With New Zealand’s short three-year political cycle, projects are halted and reviewed each time a new government takes office, adding months and even years onto timelines of projects that are eventually approved. 

The Waikeria Prison expansion and Waterview Tunnel are good examples. This is highly inefficient and NZ must adopt a model so that inter-generational assets can progress notwithstanding our electoral cycle.

Maori have always adopted an inter-generational approach to their decision making – the rest of the country would do well to take a leaf from their book.

Today, NZ has a National Infrastructure Unit, however its recommendations aren’t always adopted. Planning capabilities in government departments could also do well to lift to the robust, national long-term planning levels we are now seeing with local government.  

An independent infrastructure body that provides strategic advice to government and helps build support for bipartisan projects through strategic long-term planning could be a solution.

As advocated by Infrastructure New Zealand, it would be arms-length from government and provide advice for how to best structure and procure projects, off or on balance sheet.

Its procurement specialists could provide advice for how to best deliver projects. It would then be up to the government of the day to decide how it is funded.

Not alone

Public-private-partnerships (PPPs) are not the only model, but have been successful in engaging the private sector. They should remain an option for their efficiency, risk sharing and whole-of-life saving benefits.

An independent infrastructure body has been successful in political systems like NZ’s – Australia, UK and Canada – where they’ve helped governments deliver complex infrastructure projects and limited the risk of cost blowouts. 

In Scotland, the government must publicly state why it won’t follow the recommendations of Scottish Futures Trust. This would go a long way to prevent objections to infrastructure or procurement methods on pure ideology and tendency for each government to focus on their ‘pet projects’.

Getting up such an independent body at arms-length from government has a downside. It means the government of the day could find it difficult to respond to urgently to a project that may be a high priority for the public but makes little sense financially or when compared with other initiatives.

Another area the New Zealand government is undoubtedly considering is the task of balancing critical infrastructure spend with fiscal responsibility targets – with a publicly quoted target of net Crown debt at 20 per cent of gross domestic product within five years.

The government does have a sizeable pipeline of infrastructure spending budgeted, but there are several areas, including hospital and schools, where urgent repair is required.

That, as well as general maintenance of infrastructure, is estimated to cost an additional $NZ10 billion, which won’t necessarily add to the productive potential of the economy but is essential to at least maintain productivity at current levels.

The future

Given all this we could be increasing near-term debt targets to fund critically important infrastructure while the government books are in good form and interest rates are low. Unlike borrowing for tax cuts or social spending, borrowing for infrastructure is an investment in future economic growth.

The International Monetary Fund finds infrastructure spending is more effective than other fiscal spending in terms of delivering GDP growth dividends.

Increasing debt, be it from government or the private sector, to fund infrastructure makes sense as long as pragmatism is applied, it is spread across the country (not just Auckland) and projects are phased appropriately relative to capacity constraints.

Building a robust pipeline of infrastructure projects begins with rigorous planning, however ensuring critical projects are prioritised requires advice from an independent body.

NZ will be much-better served by our infrastructure investments by removing the politics and listening to expert opinion on funding mechanisms, be it public or private capital. The relaxing of government debt targets will also help spur more investment now.

These are ideas worth considering so NZ moves out of infrastructure catch-up mode and into investments which are future proof and capable of handling a growing country.

Paul Goodwin is Managing Director of Institutional, NZ at ANZ