Chris Bishop, the Minister for Infrastructure and Housing, spoke at the LGNZ Infrastructure Symposium in June.
“I don’t need to tell an audience as smart as this one that we have a big infrastructure deficit. There’s a lot of debate about how big it is,” he said.
“That misses the point. The real question is what we do about it.”
The country needs a credible pipeline of infrastructure projects to attract the capital and talent we need to get building, he conceded.
“We need to reduce barriers that are holding back infrastructure delivery and growth. It costs too much and takes too long to build infrastructure. We need much more of a focus on value for money. Reducing the cost for each metre roads, or rail, will help close the deficit, improve resilience, and lift productivity.
“And we need new ways to fund and finance infrastructure.”
Referring to Cabinet already green-lighting an ambitious work programme he says the planned work programme involved is “immense and ambitious”.
“Some of it will be, as I like to say ‘edgy’. That’s political code for ‘controversial’.”
We can’t shy away from tough decisions anymore, he said, and we simply have to do better after, “decades of underinvestment in maintenance, poor use of pricing, an unwillingness to use private capital, and lack of desire to use new tools.”
Crown and council infrastructure has historically been primarily funded by taxpayers or ratepayers, he said.
“Taxes and rates can be an appropriate source of funding for some forms of infrastructure, but our heavy reliance on this approach has resulted in the emergence of three significant challenges.
“First, funding settings, like pricing, for many assets do not manage investment demand or signal where investment is required. This places pressure on the Crown and councils to build new infrastructure, rather than more effectively utilise existing infrastructure. The Infrastructure Commission has done really good work here. Our infrastructure deficit simply cannot be resolved from building new infrastructure alone, and an improved approach to utilising existing assets is necessary. One way to achieve this is through changing the way we pay for assets and services to better manage demand.
“So yes, that means congestion charging to manage demand. It means water meters.
“Second, funding models for many assets do not reflect the full economic cost of delivering the service. This means operational activities, including asset renewals and maintenance, often compete with wider priorities. A classic is water infrastructure. For years water infrastructure has competed for scarce capital with other worthy and not-so-worthy council projects. With respect, some councils, including in Wellington, have funded “nice to haves” at the expense of core business.
“Third, and I hope you agree with me, councils are not currently sufficiently incentivised or equipped to deliver infrastructure in advance of growth, even when it is economically efficient to do so.
“The way current tools are designed and used, at times, struggle to recover the full cost of growth from users or beneficiaries. This results in a reluctance by councils to utilise existing tools, including making more appropriate use of financing or their broader balance sheet.
“As a result the taxpayer steps up. That explains why we have a proliferation of Crown funding buckets for Councils like the Housing Acceleration Fund, the Infrastructure Acceleration Fund, and the NZ Upgrade Programme. This is unsustainable and often unproductive. You as councils spend a lot of time lobbying your local MPs and Ministers about ever increasing buckets of Crown money. This avoids the real issues.”
On the subject of funding, Bishop said his Government’s expectation is that every significant infrastructure project that seeks support from the Crown will consider opportunities for user-pays funding and private financing.
“If such opportunities are not available, we will expect to understand why and what the options are to ‘bridge’ to those opportunities.
“We’ve started this process already. Simeon as Minister of Transport is soon going to confirm the new GPS for Land Transport. He’s already signalled that each of our new Roads of National Significance will be tolled.”
On the subject of enhancing the funding and financing tools available to the Crown and councils he mentioned two key things – value capture, and transport revenue reform.
“Put simply, value capture means that those who gain benefit from public investment help pay for it. We really missed a trick with the City Rail Link in Auckland, where landowners in and around the new stations are getting windfall gains as a result of public investment in a transformational new public transport infrastructure.
“We’ll be looking at whether we enhance existing tools like levies, targeted rates and development contributions. We’ll also be looking at land acquisition prior to the announcement of infrastructure investment intentions.”
What calls the “third pillar” of Government infrastructure plans involves reforming the Crown’s policies, frameworks, and contracting models.
“Again, there is a huge amount of work to be done here. The Crown has not always been a particularly fair, or competent, client and I have directed Treasury to lead work on modernising our policies and frameworks.
“The Infrastructure Commission is leading work right now to modernise the PPP model with input from the Treasury … I want to be clear that this government is open to PPPs, sale and leasebacks and unsolicited proposals for private sector infrastructure investment.”
‘City and Regional Deals’ is a programme to bring together central and local government more on projects in terms of responsibilities, funds, programmes, and expertise. “We can build on some of the existing urban growth and spatial planning partnerships already in existence,” he said.
New housing, he adds, will involve the beneficiaries bearing much of the cost of the infrastructure required to service housing growth.
“We are looking at direct financial incentives for councils who facilitate housing growth. We have a coalition commitment to look at ACT’s idea of GST sharing and that will be part of the conversation.”