While in Hong Kong airport, Tim McCready compares the facilities and service in three lounges open to Air New Zealand passengers.
When I checked in for my Air New Zealand Business Premier flight from Hong Kong to Auckland, I was told I had access to three lounges: United Airlines, Thai Airways, and Cathay Pacific.
United Airlines Club lounge
My first visit was to the United Airlines lounge. I initially thought the space was quite small but soon realised walls separate the lounge into different areas. This layout provides a good sense of privacy for relaxing before a flight, and a very quiet feel to the lounge.
On one side of the lounge, huge windows provide great views of the tarmac and the planes as they come and go. On the other side, the mezzanine lounge overlooks the departure hall and gates — as the world’s eighth-busiest airport by passenger traffic, there is no shortage of activity to keep an eye on, to pass the time before a flight.
There were plenty of seats of all varieties scattered around, and although it was a busy time at the airport, I didn’t struggle to find a space. The lounge also had a small shower room and a business centre.
The selection of food was underwhelming, but adequate for a short stay. The Thai green curry I tried was delicious; the cauliflower soup left a lot to be desired.
Thai Airways Royal Orchid lounge
The Thai Airways lounge is just around the corner from United’s. It also benefits from its position: great views out towards the planes, and the ability to people-watch below in the departure hall. Compared to United, this lounge felt much less private — there is a roped-off area for First-Class travellers but the rest of the lounge is wide open. The eclectic chair colours — bright green, orange, blue and yellow — were a jarring eyesore but the chairs were very comfortable.
Though the food selection was wider than that provided by United, it was still fairly standard. There was a reasonable selection of drinks to help yourself to. The bathroom had a single shower (which was occupied while I was visiting). A large business centre was available for use as well as a couple of massage chairs. I was tempted to give them a try but was also well aware of my need to fit another lounge in …
Cathay Pacific: The Bridge
Cathay Pacific is a member of the Oneworld alliance, rather than Air New Zealand’s Star Alliance, however Air New Zealand’s alliance with Cathay allows Airpoints Elite and Gold, and Business Class passengers access to its lounges on certain flights. Cathay has several lounges in Hong Kong airport (The Deck, The Wing, The Pier and The Bridge). I visited The Bridge, located closest to where Air New Zealand flights typically depart from.
The Bridge is just a few minutes’ walk from the United and Thai lounges, but as I descended the escalators into the lounge check-in area, I knew immediately I had saved the best for last. The lounge is enormous and is divided into a North and South Wing.
Each contains multiple zones, which provide a great sense of privacy and a feeling like you’re at home in one of the world’s top hotel lobbies.
Floor-to-ceiling windows span the length of the lounge, providing unobstructed views out to the tarmac. The natural colours inside the lounge — wooden floors with oak and brass accents — give a warm feeling that is often missing in airports, while the custom-made lounge chairs, bookshelves, art and sculptures throughout give the lounge a very sophisticated feel.
The food was spectacular. The North Wing is home to The Bakery, which offers freshly baked bread and pizzas, a generous buffet of Western and Asian dishes and a fresh salad bar. The Long Bar overlooks the tarmac and features an extensive wine and tapas list.
Bartenders are on hand to mix up a drink from the cocktail list — the espresso martini went down a treat.
The South Wing’s Coffee Loft has muffins, biscuits and pastries, as well as barista-made coffee. This wing also contains The Bistro — a second dining area with buffet — along with a fully equipped business centre and shower facilities.
There are nine shower rooms available, and despite the lounge being busy I didn’t need to wait to use one. They come equipped with everything you need to freshen up before a long-haul flight and are cleaned and restocked after each use.
This one’s easy. Thai Airways and United Airlines provide an adequate — albeit fairly standard — airport lounge, but if you have access to Cathay Pacific’s lounge, take advantage of it. It is truly world-class and showcases the very best of what an airport lounge can provide. Just make sure you leave enough time to explore everything that is on offer.
2021 is a chance to set a target for some of the things we can do around the city, Auckland Mayor Phil Goff tells Tim McCready.
Auckland Mayor Phil Goff says the big events of 2021 will not only put Auckland on the world stage, but will provide the impetus to expedite Auckland’s transformation into a truly international city.
He likens the programme of events — including the America’s Cup, Apec, the Women’s Rugby World Cup, the men’s Softball World Cup, the Women’s Cricket World Cup and the kapa haka Te Matatini Festival — to royal visits of the past:
“People would get out and cut their hedges and paint their fences. This is a chance for us to set a target for some of the things we can do around the city — particularly our interface between the city and the waterfront.”
Goff says the events provide an opportunity for Auckland to show itself off to the world.
Apec will receive massive international attention, with global superpowers and representatives of the largest economies expected to attend — including leaders from China, the United States, Russia and Japan. An expected 10,000 visitors will arrive for the Leaders’ meeting over the Friday, Saturday and Sunday (Nov 12-14, 2021).
“We’re probably going to have to encourage a few institutions to close for the day on the Friday to compensate for the congestion that is going to occur,” says Goff.
Echoes of 1999
Goff has been to many Apec meetings in his time as Minister of Foreign Affairs and Trade.
“They are unique opportunities to get key people together in one place, and in 2021 Auckland will be the focal point of extensive media coverage that will go right across the world,” he says.
Reminiscing about the last time Auckland hosted Apec in 1999, Goff acknowledges that while he thought it was a big event then, it was only a fraction of what Apec has become.
His standout memory from 1999 was meeting with then-US President Bill Clinton. Goff briefed him on what was happening in East Timor, where he had been an international observer of the vote for freedom, where the so-called referendum disintegrated into violence throughout the country, with anti-independence militants creating chaos.
“It was a chance — even as an opposition MP at that time — to meet some of the key world leaders, because of the unique role I had in relation to East Timor which was at the forefront of that particular gathering,” says Goff.
He notes the world has changed a lot since 1999 — and so has New Zealand. “Auckland is now projecting New Zealand onto the international scene as a really global city. One that is high-tech, moving ahead, one that people want to do business in.”
A packed schedule
Goff says that 2021 will provide a platform for Auckland to impress the people that are visiting — and all those watching from afar — that New Zealand is a small but highly competent, efficient country with high-tech innovation and a high quality of life.
“The America’s Cup will showcase the beauty of our environment with the broadcasting of the harbour, as well as our sporting skills and cutting-edge technology in yachting,” he says.
And while the Men’s Softball World Cup and the Women’s Rugby World Cup won’t be as big as the America’s Cup in terms of audience numbers, he says they are international events that will play to different markets: “Different people will pay attention to different aspects of what Auckland is doing that year. The Te Matatini Festival will be a great chance to showcase Auckland as the world’s largest city for Māori and Pasifika people — something that gives Auckland its identify.
“Our ability to leverage off the events in 2021 for investment, tourism and human capital is very important.”
One of Goff’s slogans for Auckland is ‘the place where talent wants to live’.
“That means retaining and attracting talent, and to do that, you’ve got to look like an international city humming with action.
“The centre of the city will epitomise that for Auckland — but with impacts across the whole city.”
According to the Rider Levett Bucknall Crane Index, there are 90 cranes in Auckland — an increase of 8.4 per cent over the past six months. Construction of new apartment towers, hotels, and shopping centres are contributing to the count.
“We’ll see a transformation of our skyline in Auckland, and we’ll start to look much more like a global city than a traditional New Zealand city,” says Goff.
He is looking forward to that growth, and seeing the city merge with the waterfront precinct.
“For most of this city’s history, we’ve had the red fence along the waterfront. The public have been separated from it, there is no public access.”
Goff’s eyes light up as he talks about his vision for downtown Auckland, as it begins its transition into a place where people want to go, relax and enjoy the surroundings.
Quay Street will be reduced to two lanes of traffic — with plans for wide footpaths, trees and plazas — connecting to a car-free lower Queen Street, the first part of Auckland’s “golden mile” to be pedestrianised.
The tanks at Wynyard Point, which have held a variety of hazardous substances and been a longstanding feature of Auckland’s skyline since the 1980s are being removed.
“The America’s Cup will use this area for bases in the first instance, and start to open that area up.
“You’ll see further developments of Wynyard Quarter and Britomart that will make them fantastic places to be,” says Goff.
“These are all places that will make our city a destination, not just a place to pass through.”
Goff sees technological solutions as a key component of Auckland’s transformation into an international city.
He points to the Safeswim programme as an example, which earlier this year won the Smart Water category of the IDC Smart Cities Asia/Pacific Awards 2018. A joint initiative between Auckland Council, Surf Lifesaving Northern Region and Auckland Regional Public Health Service, Safeswim provides up to date information to the public about Auckland’s beaches — including water quality, safety, and long-term health warnings.
“We’re the first city in New Zealand that can tell you — in real time — what the water quality is in beaches this morning, this afternoon, and tomorrow morning,” says Goff.
“We’re world-leading in that area, and we’re using it for the benefit of the people in Auckland.”
Other smart technologies are quickly — and dramatically — revolutionising transport in Auckland, including electronic scooters and the dynamic lane trial in Whangaparāoa.
“Twelve months ago, if you had asked me whether scooters could be a form of transport around Auckland I’d have said ‘I don’t think so’, but you see how quickly that technology changes.”
The Whangaparāoa Road Dynamic Lane project uses LED lights embedded into the road surface to mark traffic lanes instead of painted lines.
Changing the lights, along with traffic control gantries that display lanes, creates temporary lanes during heavy congestion to ensure free-flowing traffic. The project won Best Technical Solution at the Association of Local Government Information Management Awards.
Similar systems are used in Auckland along the Panmure Bridge and Auckland Harbour Bridge. The system is quick to build and around one-tenth the cost of alternative solutions.
“Auckland Transport is going to use that same technology in probably another half a dozen sites around the city,” says Goff.
“We can use technology to improve our transport systems. We can predict when something is going to happen or is starting to happen, and make changes that make it easier to get around the city.”
Goff says technology can be used to make every aspect of life better for Aucklanders:
from biological nutrient removal plants for more environmentally friendly wastewater treatment, to automatically resettable possum traps, to online resource consent filing, dog registration and rates payments.
“Council is tapping into innovations which enable us to do more for less — providing better services at a lower cost,” he says.
“It means we’ve been able to have a city that is growing by 30,000 — 40,000 a year, but we haven’t had the growth in staffing that is proportionate to the growth in population.
“Our per capita staffing levels are actually dropping — we’re providing better services at a lower cost to our rate payers.”
Goff drops hints on Mayoral race
“I am thinking seriously of running for the mayoralty again,” says Auckland Mayor Phil Goff. “I don’t want to go into a job and leave it partly completed.”
Goff says he will make a formal decision on whether to run again for mayor early next year. But he adds that three years is a very short space of time to change a city in the way he’d like to see it happen.
“Particularly with our 10-year budget, it has been transformational, with the biggest ever level of capital investment in our infrastructure. But that’s time-lagged.
“To actually see things you have put in place develop, takes longer than a three-year term.”
Goff talks about the significant progress that is being made towards Auckland infrastructure: the City Rail Link, Skypath along the Harbour Bridge, Seapath between Takapuna and Northcote Point and cycleways.
Other initiatives he wants to see progress further include cleaning up Auckland’s harbours, making Waiheke predator-free and saving the kauri from dieback in the Waitakere Ranges.
“When you come into a job like this — depending on the electorate’s willingness to re-elect you — you don’t want to say ‘I’ve done a stint there, that was nice, now I’ll move on.’
“You want to say: ‘this transformation is critical — not just for me, but for my kids’ generation, for my grandkids’ generation’.
“You want to see that through so you feel that you have been part of something that has made Auckland a better place to be in.
“So that gives you a bit of a hint of the way I’m thinking,” he says.
Based on previous years, Goff expects there to be around 12 other people vying for the mayoralty.
So far only John Palino — a two-time mayoral candidate — has formally announced his candidacy. National MP for Tāmaki Simon O’Connor is contemplating running, and has said he will make a formal decision in the New Year. Property developer and brothel owner John Chow as well as Waipareira Trust chief executive John Tamihere are also considering a tilt for the mayoral chains.
2021 is shaping up to be a major year on the Auckland calendar, with major political, business, sporting and cultural events taking place.
The annual Asia-Pacific Economic Co-operation (Apec) will be held in Auckland for the first time in 22 years. Hosting Apec involves a 12-month period from December 2020 to November 2021, culminating in the leaders’ meeting where political leaders, their ministers of trade and foreign affairs, CEOs, youth leaders, business leaders and international media from 21 Asia-Pacific economies will descend on the City of Sails.
Apec was last held in Auckland in 1999, and saw US President Bill Clinton arrive to a ‘rock star’ welcome and also marked the first visit to New Zealand by a Head of State from China — then-President Jiang Zemin.
While in Auckland in 1999, the world’s two biggest powers — China and the United States — resumed talks during an hour-long meeting, after heightened tensions following the accidental bombing of the Chinese Embassy in Belgrade during the NATO bombing of Yugoslavia.
This time around will no doubt prove just as political, with President Donald Trump potentially in his second term in office, and the status of the relationship between the US, China, and Russia anyone’s guess.
Apec 2021 is being planned, organised and delivered by an All-of-Government Apec 2021 Programme, led by the Ministry of Foreign Affairs and Trade (Mfat) in collaboration with a wide range of stakeholders and partners.
Mfat says Apec will be the biggest event ever hosted by the Government.
“With that comes an enormous amount of logistics and co-ordination that we are actively working on. We are working closely with a range of partners, including central and local government agencies, iwi, commercial partners and business interests to showcase New Zealand to the world,” says Andrea Smith, Mfat deputy secretary for Apec 2021.
Earlier the same year, Auckland will host its first America’s Cup in almost two decades, after Emirates Team New Zealand won the Cup in Bermuda in 2017.
Along with the defence of the oldest trophy in international sport, Auckland hopes to stage a successful event in March.
According to a report prepared for the Ministry of Business, Innovation and Employment by Market Economics, the America’s Cup is expected to deliver between $600m-$1b in value-add to the New Zealand economy over the 2018-2021 period and an employment boost of between 4700 and 8300 jobs.
The race will showcase New Zealand on a global stage, forge new business links and be the catalyst behind the development of better waterfront infrastructure.
The previous America’s Cup regattas held in Auckland in 2000 and 2003 each generated around half a billion dollars of economic activity.
Auckland Tourism, Events & Economic Development (Ateed) says collaboration will be critical for both major events: “2021 will certainly be a bumper year with major events spread throughout the year and Auckland will be ready to welcome these events,” says Steve Armitage, General Manager Destination.
“A collaborative programme between the Auckland Council Group, the Ministry of Business, Innovation and Employment, Mana Whenua and America’s Cup Event Ltd is already well established and working diligently to prepare for the 36th America’s Cup, while Ateed and Mfat have signed a Memorandum of Understanding and are working together with other government agencies to prepare for Apec 2021.”
Auckland will also host three other major sporting events in 2021: the Men’s Softball World Cup in July, the Women’s Rugby World Cup in July and August, and the Women’s Cricket World Cup in November.
The Te Matatini Kapa Haka performing arts festival is held every two years at different locations in New Zealand. In February 2021 it will also take place in Auckland, and is expected to draw in around 30,000 participants and spectators.
Says Armitage: “We see 2021 as a significant opportunity to advance the outcomes of the city’s destination strategy — Destination AKL2025 — which has an increased focus on destination management and sustainability that will add value for Aucklanders and our visitors.
“Over the past decade Auckland has built an enviable reputation for hosting a diverse range of global major events, showcasing the city, delivering an outstanding experience for visitors and leaving a favourable, lasting impression.”
New Zealand certainly left an impression on President Clinton. Before departing in 1999, he said: “This has been a magical trip.
“I think every person, when he or she is young, dreams of finding some enchanted place, of beautiful mountains and breathtaking coastline, clear lakes and amazing wildlife.
“Most people give up on it because they never get to New Zealand.”
Preparation under way
Auckland’s hotel market is expected to be in better shape in 2021 for the 36th America’s Cup compared to the 2000 or 2003 Cup defences in Auckland.
The city’s newest hotel, the five-star SO Sofitel, opened last month offering a volcanic theme throughout the hotel’s 130 rooms that range from $469 to $4500 a night.
Other hotels under way include the five-star Park Hyatt (195 rooms, opening 2019), SKYCITY Horizon (300 rooms, opening 2019), the Cordis extension (additional 250 rooms, opening 2020), Novotel (310 rooms, opening 2020).
But there are still concerns from some in the tourism industry that a shortage of hotel accommodation is likely.
Research from commercial real estate firm CBRE has found, based on the current pipeline of hotels planned or under construction, that there will be an additional 2200 rooms in the city by January 2021 — just before the scheduled America’s Cup race — on top of the current supply of 10,000 rooms.
But as international and domestic tourism markets continue to grow, hotel room demand will increase over the next three years. Even with the new builds taking place, demand will likely exceed supply by the time Team New Zealand set sail.
However, Peter Hamilton, director hotels, valuation and advisory services at CBRE New Zealand said other accommodation providers — such as private rooms through the likes of Airbnb — would ease accommodation pressures while the Cup is contested.
Over leaders’ week, Apec will see an estimated 10,000-13,500 attendees arrive. It is likely that the US, China and Russia will each take over entire hotels with officials, business delegations, and security.
With events spread throughout the year, Ateed is confident that the accommodation sector can meet demand during 2021.
“Apec Leaders’ Week takes place for a short time during the off-peak period in early November,” says Ateed’s GM Destination Steve Armitage. “There are a number of infrastructure projects underway to support Auckland’s growth and improve the visitor experience, many of which are in the CBD and waterfront area and will be complete or well advanced by 2021.
“An important legacy of the major events the city has successfully hosted is that we have significantly increased our capacity and capability. The city is better placed to ensure the success of 2021.
“The most important message is to plan ahead for Leaders’ Week. We are working closely with Mfat and our partners in the tourism and accommodation sector to help people do exactly that.”
What’s in it for business?
Tim McCready asks the Ministry of Foreign Affairs and Trade’s Andrea Smith why Apec 2021 matters for NZ business.
Mfat Deputy Secretary Andrea Smith is leading the All-of-Government planning and delivery for Apec 2021, working closely with local bodies including Auckland Tourism, Events & Economic Development (Ateed).
“Trade matters. One in every four New Zealanders in work today depends on exports for their livelihoods,” she says.
“The Asia-Pacific region is the fastest-growing economic region in the world and most of our two-way trade is with Apec economies. Apec is also the only international forum where we have the opportunity to host 21 leaders at the same time. In 2021 we have a huge opportunity to showcase New Zealand and Auckland to the world that only comes along once every 20 years.”
So what’s in this for business?
“Apec 2021 offers opportunities to connect New Zealand businesses with international visitors and help drive economic growth,” says Smith.
“We’re working with business to run a successful CEO Summit, to develop policy initiatives and theme, on leveraging and legacy activities, and on sponsorship.
“A range of businesses will also be involved in the event delivery itself by supplying goods and services. Overall, it’s a fantastic opportunity for New Zealand businesses, and a chance to tell the story to the world about who we are as a country and what we have to offer.
“At the Apec Leaders Meeting in Port Moresby last month, economies failed to reach consensus on their declaration, so business may be wondering about the future of such meetings. In these ‘turbulent times for trade,’ institutions like Apec — that have served us so well — are more important than ever to bring leaders together and discuss meaningfully their vision for the rules-based trading system.”
If the companies within the financial services industry are to survive the fourth industrial revolution, they must embrace emerging technologies.
That was the message from Likhit Wagle, IBM Asia Pacific’s general manager financial services, at the 2018 INFINZ conference this month.
“If the financial services industry continues at its current rate and pace — and doesn’t respond to disruption from the changing environment — the average return on equity globally for the industry will collapse by 2025 from about 10 per cent to about 5.5 per cent,” says Wagle, referencing data from McKinsey.
One of the reasons for this, he explains, is that after the financial crisis there were massive increases in the level of capital that banks have had to put aside, but the level of profit growth has not kept pace with the level of capital increases that needed to come about.
However, the threat the financial services industry face isn’t coming from fintech companies.
Like the pharmaceutical sector — where smaller biotechnology companies are providing the innovation for the pharmaceutical industry’s distribution channels — banks around the world have recognised that fintech companies can provide an engine for innovation and growth.
Banks are starting to collaborate with fintech companies so that the latest technology innovation can be channelled through the much larger distribution networks the banks can provide.
Instead, it is the platform companies — like the Chinese behemoths Alibaba and Tencent — that is placing the pressure on the industry.
Though these companies might have started life as a trading platform, they have moved into asset management and the provision of substantial financial services — satisfying multiple needs of the customer through a single platform.
When Ant Financial (the financial services subsidiary of Alibaba) lists, the expectation is that the “super unicorn” will be valued at US$150b — a similar size to Citigroup and twice the size of Wall Street titan Goldman Sachs.
The risk for financial services firms is that the more that can be done on a single platform, the greater the risk that people don’t step off that platform and do business through their bank. The risk banks now face isn’t just the possibility of marginal reductions in market share and the squeezing of margins, but rather the potential for “Kodak” moments — where huge chunks of a business completely disappear overnight.
Wagle is optimistic about the future, so long as banks begin implementing changes that will allow them to compete head on with the threat of disruption.
1. Implementing the new generation business architecture to provide extreme convenience
There is an architecture — which Wagle calls the “new generation business architecture” — that will enable banks to be more efficient, productive and informed than they currently are.
The four key technologies of this architecture are artificial intelligence (AI), cloud, blockchain and the Internet of Things (IoT).
“If banks do not introduce these technologies on an enterprise-wide basis, then they are going to be in some trouble,” says Wagle.
He says that aside from very mundane, routine tasks that are very low level, “we are a long way away from replacing people with AI”. However, one benefit that these technologies will provide is their ability to analyse research and data, augmenting and enhancing the capabilities of people.
“Where in the past you might have spent several days preparing for a meeting, you can now prep for that meeting within minutes,” says Wagle.
“In one of the engagements IBM did with relationship managers in wealth management, their productivity was enhanced eight times because they used technology to help with the research.”
The new generation business architecture will help banks to provide the level of convenience and immediacy that has become increasingly commonplace with technologies like Uber.
When someone makes an application for a loan, they do not want to be waiting days — let alone weeks — for the money to hit their account.
Wagle says that banks have done a very good job of creating customer apps, but the processes behind the apps and the technology that supports those processes is still often in the dark ages.
“There is still a lot of manual activity,” he says. “Banks should make use of technology and APIs [the software that essentially connects various entities’ systems together] to ensure the vast majority of banking processes can work together, so that they are able to provide an end-to-end digital experience.”
2. Offering services that go beyond banking
“If all you’re going to provide a customer is a loan then it is very fast going to become a commodity exercise, because they’re going to go from you to someone else to someone else and find the cheapest offer.
“We have gone past that era where you can schmooze an individual, form a relationship, and say that they are going to stay with you forever.”
Instead, banks should start thinking beyond banking, and create ecosystems.
As an example, Wagle explains that some banks are already able to provide a range of services when you ask for a mortgage.
Alongside the loan they can provide advice on where you should buy, what the community and schools are like, and what the valuation of the house should be.
They have an ecosystem around the house buying decision because they are helping the customer to buy a house — not only selling a mortgage.
“This provides a much stickier experience,” he says.
“Customers will make their decision on the quality of services they are receiving, instead of solely on what a bank is charging for the mortgage.”
3. Reducing costs with efficiency-boosting technology
When benchmarked against the global banking industry, the cost-to-income ratio for New Zealand banks is very low.
But, Wagle explains, that is not because New Zealand has a highly efficient banking industry, but rather because New Zealand’s margins are very high.
“Your margins are spectacular compared to other parts of the world,” he says.
He warns that if we get competition here it will start to compete the banking margin away.
“You are probably about 5-7 percentage points in cost-to-income ratio higher than where you need to be. What that then means is you’ve got to get somewhere between 22-25 per cent of your operational and IT costs out of the business — and the way to do that is through cloud.”
Cloud computing can cut as much as 40 per cent of information technology costs for banks, while also improving security and efficiency.
Though there is very little you can put in the public cloud in the financial services industry due to regulations and requirements on data privacy, banks can put their middle and back office workloads on to a hybrid cloud platform — something Westpac has done in Australia.
That is now driving 25 per cent out of their cost and has also given them real agility.
“Things that were taking 20-25 days to do before, they can now do in three or four days.
“It’s giving that speed that you need to have in order to really satisfy the customers in that kind of instantaneous way that has become so important,” he says.
New Zealand banks have a massive benefit that the likes of Alibaba don’t — yet — have. Most of the data that is required to service the requirements of customers exists within the bank, and it will take new entrants a long time to get that information and to build trust.
There is only a limited window of opportunity. As open banking becomes a requirement around the world, banks will have to make their data available to any customer that wants the data to be provided to external providers and will lose their monopoly.
By addressing issues around customer services and convenience, thinking beyond banking, and operating at costs that are substantially lower (and therefore offering more competitive pricing), the financial services industry will be much more secure in the face of competition.
Are restrictions on local government funding mechanisms stifling the ability of our cities to grow at their best?
When running for mayoralty in 2016, Phil Goff made the following commitment on rates:
“Rate rises will be kept low and affordable at an average of 2.5 per cent per annum or less, if current council fiscal projections are correct and the consumer price index stays low.”
The question of how much rates will rise — and the commitment to keep them as low as possible — are cornerstones of any recent Auckland mayoral bid. But there are concerns the current restrictions on local government’s funding mechanisms are stifling the ability of our cities to grow at their best.
Reliance on revenue from rates
In New Zealand, council revenue is largely separated from economic performance.
Local government is the core funder of transport and water services for new development, yet its revenue is derived from property rates — which are a cost allocation method linked to council costs, and not to the success of the economy or land prices.
Conversely, central government is the direct benefactor of growth: receiving increased GST, income tax and corporate tax when the economy grows.
Increased council costs mean an increase in rates, irrespective of economic performance, and any efforts made to charge ratepayers more to deliver additional services — including for those without homes who pay no rates — is consistently met with strong opposition from homeowners.
Councils see little funding benefit from growth, and as a result tend to have a culture of cost minimisation, heavily influencing their decision making at the expense of value creation.
“Importantly, from a local government economic development perspective, property taxes are not the best incentive to encourage councils to invest in infrastructure,” says Local Government Funding Agency chair Craig Stobo.
“If council revenue streams were tied to their performance, successful councils would accrue more revenue, providing more choices for their communities.”
This is not a new concern: a 2015 review into local government funding by Local Government New Zealand (LGNZ) found that the heavy reliance on property taxes to fund local services and infrastructure fails to incentivise councils to invest for growth.
The only other major source of revenue local government currently has in its toolkit is to lobby central government: Shane Jones’ Provincial Growth Fund will see an investment boost in regional New Zealand, and the Housing Infrastructure Fund is aiding high growth councils to advance infrastructure projects that will help increase housing supply.
Yet the patience required for central government to fill the funding gap has seen growth issues turn chronic. Infrastructure New Zealand is concerned that private capital which could have filled the gap has been left searching for opportunities overseas.
Funding and finance inquiry
Local Government Minister Nanaia Mahuta acknowledges the funding challenges faced by local government and the constraints of rate rises, noting they are rising faster than incomes and cannot be the only solution. She says that — if not met — the funding gap will have consequences for local communities and for the entire country.
“Local government is facing increasing costs for things like three waters, roading, housing, and tourism infrastructure as well as adapting to climate change,” she says.
And some of the councils facing the biggest cost increases also have shrinking rating bases.”
Last month the Minister of Finance, Grant Robertson, asked the Productivity Commission to conduct an inquiry into how to fund and finance local government.
The inquiry will investigate:
Cost and price escalation for services and investment, including whether this is a result of policy and/or regulatory settings
Current frameworks for capital expenditure decision making, including cost-benefit analysis, incentives and oversight of decision making
The ability of the current funding and financing model to deliver on community expectations and local authority obligations, now and into the future
Rates affordability now and into the future
Options for new funding and financing tools to serve demand for investment and service
Constitutional and regulatory issues that may underpin new project financing entities with broader funding powers, and
Whether changes are needed to regulatory arrangements overseeing local authority funding and financing.
Stobo says the terms of reference given to the Commission by Robertson are very good, and the requirement to consult with the sector is a helpful recognition of the expertise the sector can bring to the table.
“Prospectively this could lead to some devolution of tax setting and collection powers to local government, and a cessation of inefficient quota handouts from central government.
“The final results need to improve the incentives for councils to responsibly invest in local growth,” he says.
The New Zealand Initiative’s executive director, Dr Oliver Hartwich, is confident the Productivity Commission will produce good results.
“What is important for the Productivity Commission’s inquiry is to consider the incentives under which local government operates, and the Terms of Reference certainly allow that,” he says. “More specifically, it will allow the commission to consider the OECD’s recommendation to the New Zealand government that councils should participate in tax revenue increases resulting from economic growth.”
The commission’s final report is expected to be presented by November 2019.
Calling for localism
Coinciding with the announcement of an inquiry, LGNZ and The New Zealand Initiative launched their Localism project, calling for a shift in the way public decisions are made in New Zealand by seeking a commitment to localism. LGNZ President and Dunedin Mayor David Cull says it is important the new funding options incentivise growth.
“[The Localism Project] will highlight how the right incentives and funding can build strong local economies and vibrant communities. The urgent need to properly empower councils is reinforced by the fact that decentralised countries tend to have higher levels of prosperity than centralised ones.
“New Zealand is among the most centralised countries in the world.
“We should not expect central government in Wellington to be the best decision-maker for every local problem. Communities often know best what they need.”
The New Zealand Initiative’s Hartwich adds: “After more than a century of centralism, New Zealand needs to go local.
“Councils and communities must be able to make their own decisions about their future.”
A final report and publication of the Localism Proposal is expected in early 2020, and Hartwich notes there will be ample opportunity for the Localism report and the Productivity Commission inquiry to cross-fertilise.
Taking lessons from America
The city of Houston uses sales taxes to fund general activities.
Earlier this year, Infrastructure New Zealand led a delegation of NZ representatives to Portland, Denver, Dallas-Fort Worth, and Houston — four US cities that are growing more affordably than Auckland — to consider how they are doing what they are doing, and what New Zealand can learn from them.
The report, Enabling City Growth: Lessons from the USA, provides detail on the lessons learnt from the visit, including the following on how local authorities are funded:
US cities have a number of funding mechanisms that are tied to their economic performance. Denver, Dallas, and Houston use sales taxes to fund general activities, and each has levied a 1 per cent sales tax to deliver improved public transport.
Dallas and Houston have property taxes with a strong link to property value. In each case, the revenue of the city and its component institutions increases with the success of the city in growing the economy and delivering homes.
Portland, the city with the greatest growth challenges, also has the fewest incentives to grow. There is no sales tax in Oregon, removing this option also for Portland.
Instead, Oregon relies on comparatively high income and corporate taxes, but has not extended the ability for Portland to levy these direct.
Property taxes in Portland have been tied to inflation since the early 1990s. Thus, property values have now become detached from property rates and the two are only reviewed when properties are significantly changed or redeveloped.
Suggestions for reform could impact on local councils, reports Tim McCready.
Figures released last month in a Ministry of Health report show one in five New Zealanders are drinking water from water supplies that don’t meet current drinking water standards.
The report shows larger suppliers — including Auckland’s Watercare, Wellington Water, and Dunedin — are meeting compliance standards throughout the year. But many smaller communities are failing to comply, including some of New Zealand’s most iconic tourism destinations: Coromandel, Whangamata, Waitomo Caves, Tekapo and Milford Sound.
In the 2016 outbreak of gastroenteritis in Havelock North, an estimated 5500 of the town’s 14,000 residents became ill with campylobacteriosis and 45 were hospitalised. It was ultimately traced to contamination of drinking water supplied by two bores — with sheep faeces being the likely source of the pathogen.
The Havelock North incident raised serious questions about the safety and security of New Zealand’s drinking water, and sparked a Government Inquiry into the outbreak.
The inquiry made 51 recommendations to improve drinking water safety — including that all water supplies should be treated, and that a dedicated drinking water regulator should be established.
Speaking at the Local Government New Zealand annual conference last month, Minister for Local Government Nanaia Mahuta said:
“The findings of the Havelock North Inquiry have been a sobering reminder of how, for the sake of our communities, we must make sure that drinking water services are high quality and safe. Too many areas across the country do not meet drinking water standards; in smaller areas, the level of compliance drops to less than 50 per cent.”
A shift to dedicated providers
Stage two of the Three Waters Review was launched in March, and is considering how to improve the management of drinking water, stormwater and wastewater.
New Zealand’s three water infrastructure and services are primarily owned and delivered by the 67 territorial (district and city councils) and unitary authorities, or council-owned and controlled water organisations (in the case of Watercare and Wellington Water).
Accountability for overall service performance is through the local government election process. In theory, if the public is unhappy with the performance of their council they will elect new councillors. But in reality, most members of the public do not have the information, capability, or desire to effectively monitor service outcomes. In many cases — including Havelock North — it is not until things go wrong that the public find out the extent of the problem.
The Havelock North inquiry recommended moving to a system of aggregated, dedicated water providers. A Three Waters public discussion document released by Internal Affairs asks what the options for a new model might look like:
Regional, publicly-owned water providers?
A small number of cross-regional, publicly-owned providers?
Infrastructure New Zealand chief executive Stephen Selwood says scale really matters in the water business, because as well as enabling economies of scale, it provides the revenue base to maximise skills capability and capacity to govern, fund, oversee and operate water service delivery effectively.
“The value of scale and capability is already being clearly demonstrated by Watercare and Wellington Water who have between successfully implemented significant improvements in services in their regions that were not previously possible under local council management,” he says. “I favour a small number of providers, from one to to five. One provider like Scottish Water with independent regulation has proven very successful. With one provider you would look to benchmark performance with international comparators like the Australian states. Between three and five providers provides the opportunity to benchmark across NZ companies as well.”
Mahuta, who recently returned from a research trip to Scotland and Ireland to consider the models used there, says there are no pre-determined solutions, but a bottom line is continued public ownership of existing three waters infrastructure.
“Any option must ensure continued public ownership of existing infrastructure assets and we must provide the protections of that assurance through governance and ownership arrangements, at law and ministerial oversight,” she says.
Mahuta says it is critical the Government works closely with councils, iwi, and stakeholders with an interest in three waters services to develop options and recommendations.
How the overhaul will be paid for remains unclear, and Mahuta has acknowledged funding challenges: “Climate and population change alone mean that, even if we address the challenges in front of us now, significant funding pressures will continue to arise for decades to come.” Selwood says it should pay for itself, citing Scottish Water as an example:
“This publicly-owned national water service provider delivers drinking and wastewater services to five million people across an urban and rural hinterland comparable to NZ.
Since formation in 2002, Scottish Water has delivered substantial improvement in water quality, environmental performance and customer satisfaction, while reducing operating costs by 40 per cent and capital costs by 20 per cent on an enlarged capital investment programme.”
One of the main challenges with reform of the water sector will be the impact on local councils. For smaller councils, water is a significant component of their responsibilities.
Removing these raises questions about future viability.
Says Selwood: “I think this provides an opportunity to refocus councils from managing utilities and engineering challenges to being more focused on their communities, their people and giving true meaning to local engagement and participation by people in local affairs.”
Successive reports over the past two decades undertaken by a diverse range of agencies and organisations (including the Office of the Auditor General, Water New Zealand, Engineering New Zealand, Infrastructure New Zealand, the Parliamentary Commissioner for the Environment and the Local Government Infrastructure Efficiency Expert Advisory Group) have pointed to serious deficiencies across the sector. Between them, these expert bodies have compiled a compelling case for change.
Major challenges include:
lack of information about the state of infrastructure assets — especially in small rural councils
lack of information or control of the cost of providing water infrastructure and services
excessive and inefficient water use
contamination of surface water and groundwater from uncontrolled or poorly managed storm water drainage and wastewater disposal — one in five wastewater treatment plants are operating on expired discharge consents
poor recreational and bathing water quality
lack of investment and deferred maintenance, in part through incomplete pricing or small ratepayer base, and political constraints to increases in local authority rates and charges
institutional and regulatory barriers to improved management
regular water supply shortages — especially during summer
high frequency of “boil water” notices
a backlog of investment in water infrastructure of up to $7 billion
A capital injection will allow China’s ICBC bank to invest further in New Zealand infrastructure projects.
ICBC NZ recently received an additional US$60 million (NZ$88.08m) capital injection from the bank’s head office.
This new funding — approved by ICBC at a time where the global trade and investment environment has been subdued — is a strong signal of the bank’s commitment with New Zealand.
ICBC NZ’s chief executive, Karen Hou, says the additional capital will allow the bank to further invest in local infrastructure projects.
The bank has already invested across a range of industry sectors — including financing support to the banking syndication for Wellington’s Transmission Gully motorway, several key pieces of infrastructure in the Christchurch rebuild, and hopes to do more in the near future.
“Infrastructure continues to be ICBC’s main area of focus,” says Hou.
Selecting infrastructure partners
ICBC is present in 18 countries along the Belt and Road, loaning US$78.6 billion against 288 projects.
Hou says this gives the bank strong capability in global infrastructure, which the bank can leverage for New Zealand projects.
She suggested the Government could establish specific standards for global construction partners, to identify and select the best global companies, including Chinese firms, to bring experience and expertise into the country from across a range of infrastructure classes — bridges, railways, motorways, schools, power and water — along with capital.
“The use of Chinese companies can make the cost lower relative to others due to labour, scale, and the cost of materials,” says Hou.
“At the same time, Chinese technology, management and safety are world-leading.
“We should aim to bring the best from around the world to New Zealand — ICBC would like to assist to introduce and facilitate Chinese top players into the local market.”
The bank is now assisting a delegation of New Zealand Infrastructure companies that plan to visit China next year, in order to learn from China’s most advanced projects, central planning, execution and implementation methods.
“In order to deliver successful projects, it is important to select those companies that have significant global experience on major projects, as well as a good attitude towards
environmental protection,” says Hou.
Making projects more attractive
Though the opportunity for infrastructure investment in New Zealand is significant, Hou notes that the return on projects can be very low and spread over a very long project recovery period, which can make banks cautious about lending.
She says that Chinese companies are interested in the New Zealand market, but they are facing some difficulties here that means they cannot bring their comparative advantage here. These include:
1. Project overruns and delay.
2. It is difficult for some Chinese construction companies to succeed when bidding on tenders, because there is a local experience requirement when you bid.
3. Despite winning a tender, some Chinese companies have to subcontract to local builders, and are unable to take advantage of using their own staff due to a lack of policy support for filling labour shortages that could help rapidly advance infrastructure projects.
Hou says there are opportunities for the Government to help make local infrastructure projects more attractive.
“The Government may choose to partly invest alongside private companies,” she says.
“They could also introduce preferential policies that help support the infrastructure or provide a bottom line for future investment repayments.”
“If the project can be structured well and can balance reasonable returns and a mitigated risk, then it will become very attractive.”
Hou gives two examples of how the Government can help — the BOT public private partnership (PPP) model, and combing smaller infrastructure projects together.
The BOT (build, operate, transfer) model is one of the most popular PPP models used in China for delivering major infrastructure projects.
Under the BOT model, the government uses the private sector to design, build and run an infrastructure project. After a period of time the asset is transferred back to the government.
This structure relies on the private sector, but the government supports the private sector to help with regulatory hurdles and ensuring the repayment of the investment makes the project worthwhile.
As an example, when establishing a subway: the cost is designed from the outset, including how to repay the investment. If there is not enough money to repay the investment through the subway alone, the government can help by using other developments associated with the subway — such as the related commercial areas — to go towards the repayment of the project.
This way, getting resources for infrastructure projects is easier because the risk of repayment is lowered.
Combining infrastructure projects
Hou notes that in New Zealand there are many significant infrastructure projects in development ranging in size.
“There is an infrastructure deficit in New Zealand that could be as high as $30 billion,” she says. “Individual projects might range between $200m and $3b, but if smaller projects are combined then it could significantly lower the overall cost.”
She says Chinese construction companies are unlikely to be attracted to New Zealand to undertake one small project.
“Generally, small projects will only attract the small companies, not the high-end companies. In order to attract the biggest and the best to come here, there needs to be a clear pipeline of large projects that will justify bringing people and equipment to this country.”
Wuqing: satellite city opportunities
ICBC NZ chief executive Karen Hou is keen for New Zealand to consider inter-city transportation links, such as the line between Beijing and Tianjin that has cut travel time from three hours to around 30 minutes.
“A satellite city provides many infrastructure projects,” she says. “Not only the transportation network between cities, but also development of areas around and along the transportation network.”
Hou says by combining these developments together, the project scale becomes much larger and is more attractive to some of the biggest and best global developers.
One example of this is Wuqing, a satellite city located 70km from Beijing. The Beijing-Tianjin high-speed rail service was introduced in 2008, and includes a one-minute stop in Wuqing.
Wuqing used to be a transport hub, carrying cargo to Beijing along the Grand Canal. But the rise in railway and roading meant until the high-speed rail service was introduced, opportunities in the city were limited.
Since then, Wuqing has been propelled into an important satellite city, attracting more than 8200 projects from Beijing over the past five years, totalling 51.6 billion renminbi, according to the district government.
The city is just 24 minutes from Beijing which makes commuting for work feasible, and it has opened the city up for significant new infrastructure development, offering far more affordable housing options than in Beijing or Tianjin.