Infrastructure NZ’s Paul Blair tells Tim McCready that infrastructure investment and construction will play a major role in New Zealand’s economic recovery programme – but central and local government collaboration is required to make it happen.
Infrastructure NZ – New Zealand’s peak infrastructure body representing 140 public and private sector industry members – says the Government’s response for the infrastructure and construction sector has been quick, clear and commendable, but says now is the time for regional and central government to collaborate and tackle projects that will improve outcomes for the bulk of New Zealanders who live in major centres.
In a letter sent to infrastructure minister Shane Jones earlier this month, Infrastructure NZ chief executive Paul Blair recommends the Government establishes a $20b ‘national recovery programme’ of funding, over and above identified projects able to be accelerated by the Infrastructure Industry Reference Group.
It suggests that this programme of work – as yet undefined – could be rapidly co-designed and funded using rapid deployment techniques used post the Christchurch and Kaikoura earthquakes. The North Canterbury Transport Infrastructure Recovery (NCTIR) alliance and the Stronger Christchurch Infrastructure Rebuild Team’s (SCIRT) were award-winning, speedy and well-regarded programmes. It would allow the Government to have flexibility and co-design for the ‘new normal’, as opposed to only accelerating existing shovel-ready projects.
Blair says the priority for the national recovery programme long-term is to establish a “North Star” against which immediate and intermediate options can be assessed to ensure they align with a longer-term strategic direction. The letter outlines five components that will be critical to the strategy:
A vision for where the Government sees New Zealand’s future, especially with the significant Covid-19 changes
Long-term strategic planning to achieve the vision
Funding and finance
Regulations and incentives
Delivery capability and capacity.
Partnering with councils
Blair says one of the ways this strategy could assist, is by partnering with councils which have a significant need for infrastructure investment but face substantial funding issues.
Rates provide an average of only 60 per cent of council revenues – which some councils are already choosing to freeze or cut. The rest comes from more commercial sources like developer contributions, fees for public services, or dividends from airports, ports, or stadiums. These too are being severely hit by Covid-19.
“Hard-hit councils require financial support from central government that is tied to shared priorities through urban growth partnerships,” says Blair.
To put the challenge they face into context, he explains that individually, New Zealanders pay roughly $1125 per year to council, but $15,250 to government.
“It’s easy to see that is not equitable when local government owns roughly 40 per cent of the country’s infrastructure – the same as central government – but only has about a tenth as much money to maintain and upgrade it.”
He says the growth councils – Auckland, Wellington, Tauranga, Queenstown, Hamilton – make up a majority of our population, and should be expanding their operations at this time.
“Under an all-of-government approach, councils should be the very definition of shovel-ready. But instead their revenues are going down, and unlike central government they can’t go and borrow more.”
He points to Tauranga City Council as an example, which recently announced that its revenue would be reduced by between 15-25 per cent.
The looming funding issue for Tauranga could see some $300m of housing-related infrastructure stopped. It cannot fund long-term planned capex due to cost increases, population growth and leaky building claims that would mean it would breach its debt cap without politically unachievable rates rises.
An NZIER report shows the 10-year impact of Tauranga City Council’s failure to invest in local pipes and roads could be:
a housing shortfall of 8,436 units
cumulative GDP foregone of $2,547 million
1,580 – 2,320 construction jobs lost, worth an additional $118-$174 million of GDP foregone
house price rises of $702,082.
“If you give $1 of new income to a council, they can go and borrow $2.50. But if they lose a dollar, they also lose the ability to fund $2.50,” explains Blair.
In addition, the loss of this infrastructure would see significant lost opportunity for Crown revenues, impose further costs on the Crown (assuming accommodation supplement and other housing-related costs rise) and would lead to spiralling wellbeing losses.
Blair says the counterfactual is that if Crown gave $100m of new income to TCC, it could borrow an additional $250m, creating enough headroom for the capex to continue. The cumulative GST on $2,547m of GDP is $382m – significantly exceeding the Crown’s initial $100m investment.
He says that while central government funding is urgently required, this shouldn’t be seen as a ‘free lunch’ for councils. As with all good partnerships, both the government and councils will need to show partnership behaviours, and rapidly align on win-win national, regional and local objectives and outcomes.
“We all share a common goal to re-inflate the economy and adapt to the new normal. Urban growth partnerships are a core part of the Government’s urban growth agenda, we now call for these to be funded and delivered at pace.”
Infrastructure NZ says if the Government can replace, or even enhance, lost council revenue, then local works in local communities can restart at great speed.
“Local government is where some of the greatest need is and where the greatest leverage can be exerted,” says Blair.
“In these times partnership will be essential. Central and local government need to be working together, not at cross-purposes – he waka eke noa.”