by Michelle McCormick, Policy Director, Infrastructure New Zealand
The list of infrastructure that we need to pay for just gets longer and longer.
Before this year’s multiple weather disaster events and the damage caused, we were already struggling to fund and finance the infrastructure needed to support New Zealanders across the motu. Keeping the lights on, the roads moving and the water flowing seems so simple, yet our public infrastructure is in an aging state and this year has shown us how vulnerable the things that we rely on every day really are.
Aotearoa New Zealand’s infrastructure shortfall stands at $210 billion, and it is growing; the cost of Cyclone Gabrielle and the Auckland Anniversary weekend floods is estimated at between $9 billion and $14 billion respectively.
Kiwis are currently suffering from a lack of necessary and essential infrastructure across our communities – from substandard drinking water quality and overflowing stormwater drains, to congested roads and unreliable public transport, not to mention the unplanned power outages and telecommunications black spots. These are all symptoms of our struggling infrastructure trying to keep up with the demands of our climate and our growing population.
Te Waihanga (the New Zealand Infrastructure Commission) says that $31 billion will be needed each and every year over the next three decades just to catch up. This amounts to nearly 10 per cent of our gross domestic product each year – an enormous and unsustainable sum. Underinvestment in our vital infrastructure stands as one of our nation’s most significant long-term economic challenges.
The government’s current commitment of $92 billion for infrastructure projects over the next five years, excluding major projects like Auckland Light Rail or a second harbour crossing, falls short of the estimated $210 billion deficit. Our ambitious infrastructure plans, grand visions and even primary needs may need to be curtailed. We must explore alternative means of financing this critical infrastructure, as there is no magic money tree at the end of the garden.
The moot point is that New Zealand’s infrastructure spending has already reached unprecedented levels, yet it still falls short. Despite allocating a larger portion of our national income to public infrastructure, the existing investment is still inadequate.
We need to use the infrastructure we have more effectively. More must be spent to improve what we already have, make it more resilient and adapt it to our changing climate. We must also build new infrastructure if we are to grow, prosper and protect our communities from climate change; however, we know that the government’s pockets just aren’t deep enough, and we must start using a broader range of funding and financing options that will involve private sector involvement.
With the government already borrowing for the $6-billion National Resilience Plan, it is clear that borrowing for essential long-term assets will be required, and this aligns with our societal needs. Such intergenerational investments enrich our lives and pave the way for our tamariki, mokopuna and future generations. To accomplish this, the private sector has a crucial role to play, leveraging funds and financing infrastructure projects at fair rates of return.
Public-private partnerships (PPPs) have long been a cornerstone of our economy. It is true, however, that several projects funded and delivered through PPPs have encountered setbacks. This has resulted in a very specific pushback around this model in New Zealand, but we must pick ourselves up and learn from these missteps. A total ban on this model would be an even bigger mistake.
Right now, most major public infrastructure projects are solely funded by the government. We’re not short of news around those projects being delayed and coming in way over budget. The City Rail Link in Auckland is a high-profile example, first marked down to be ready by 2024, and now expected in 2026 at more than $1 billion over budget so far.
Also in the Nelson region, the Waimea Community Dam has just been finished. It’s the largest publicly funded dam to be completed since the Clyde Dam in 1992, and will eventually secure the region’s water supply for the next 100 years. It’s more than a year behind schedule and its original price tag of $105 million has blown out to at least $198 million.
It’s worth making a comparison with the ultra-fast broadband rollout across the country, which was funded with a PPP model. The partnership between the government and Chorus leveraged $1.7 billion of government funding to attract $5 billion of private capital. The program was delivered on time and on budget, and resulted in superior technological connections and coverage across Aotearoa. Think about what our COVID-19 lockdowns would have been like without reliable internet.
Successful PPPs also include our listed port companies. For instance, Napier Port utilised the capital raised from its share market listing to efficiently deliver the construction of a new wharf, Te Whiti. Not only did the project come in below the initial budget of between $173 million and $190 million, but it was also completed ahead of schedule at a cost of $171 million.
In the recent budget, the government unveiled its national electric vehicle (EV) charging strategy, aiming to install charging stations across New Zealand. This project presents an ideal opportunity for a PPP, combining capital and industry expertise. The charging network will serve as a catalyst for increased EV adoption. We have advised the government to consider a PPP approach for successful strategy implementation.
Unlocking the power of public-private cooperation is vital for New Zealand’s infrastructure development. It would enhance delivery capability, transfer key risks of deliverability to the private sector and increase the likelihood of projects being finished on time.
Another way to gather much-needed funds to pay for the things we need is through transport pricing and congestion charging across our cities, particularly in Auckland. Transport pricing strengthens the relationship between those who pay for infrastructure and those who use it, but suitable alternatives to private vehicle travel must be in place first.
Current road charges, such as petrol taxes and vehicle registration fees, fail to account for the varying times and location of travel. The difference in the real costs between driving during peak hours on congested motorways and driving on quieter roads at night is significant. Congestion during peak times imposes additional costs on road users and must be considered for a fairer pricing system.
Attempts to accelerate these methods have languished in New Zealand. Over the past 10 years, we have seen many attempts to introduce transport pricing in our cities. Most recently, the Transport and Infrastructure Select Committee investigated congestion pricing and made several recommendations to parliament in 2021. The Committee recommended that the government get on with some legislation to enable New Zealand cities to use congestion pricing; however, as yet, there has been no movement from the government. It seems to be one of the few policy settings that all major parties can agree on, but we are still waiting for that elusive political champion to take this forward, and win the hearts and minds of the public.
Our current approach to public infrastructure delivery places the financial burden squarely on the public sector. Infrastructure projects are typically initiated and driven by local or central government, with the private sector sometimes entering the journey towards the end of the delivery process. Despite this, to create a more attractive environment for private investment, it is crucial to engage the private sector earlier in the consultation process, implement changes to the resource management system, and reduce regulatory red tape.
By solely relying on the government to finance improvements to our transport, water, and social infrastructure, New Zealand is missing out on significant opportunities for enhanced delivery, efficiency and scalability. It’s time we, as a nation, changed our mindset and woke up to the harsh reality that the government really can’t pay for everything, and that a new path must be found. //