Infrastructure plan warns less money for roads, more for hospitals - ‘hard truths’

“The plan does not sugar-coat things: New Zealand has real challenges ahead,” Infrastructure Minister Chris Bishop said.

Those remarks were echoed by the chair and chief executive of the Infrastructure Commission, Raveen Jaduram and Geoff Cooper, who said New Zealand needed “a willingness to change how we plan, fund, build and maintain infrastructure, and the courage to face hard truths”.

In what could be a challenging recommendation for the current Government, the commission singled out transport as a sector of concern, warning that while the country “spends more on land transport than any other infrastructure class, yet current investment plans exceed what can be sustainably funded by users”.

It recommended more user-pays mechanisms to make better use of the transport infrastructure that already exists and better prioritising of spending plans.

Some of the user-pay initiatives could be controversial however. The Commission did a “high-level” analysis on the Waitematā crossing, reckoning a $9 toll, equivalent to the inflation-adjusted toll on the original harbour bridge, might be needed. The same toll would need to be applied to the existing bridge to stop people avoiding the toll. Together the tolls would bring in $7-9 billion.

Advice published in the Herald has shown officials are increasingly sceptical of the Government’s ability to deliver on its promises to build over a dozen new highways, with a cost currently expected to run to quarter of a trillion dollars over two decades.

The commission said what was actually needed was reform to “ensure spending is focused on maintaining existing networks and delivering new projects only where they respond to demand and provide clear value for money”.

The commission’s castigation of transport spending was part of a wider recommendation to introduce more user charges for some infrastructure.

“Network infrastructure such as roads, telecommunications and water should be funded by users,” the report said.

Forcing these costs on to users would free up the Crown to use tax revenue to “ pay for social infrastructure such as hospitals and schools”.

Hospitals were a major focus of the report, with the commission reckoning investment demand as a share of GDP will double from his 2010 to 2022 average of 0.2% to 0.4% over the next 20 years as the population ages.

By contrast, demand for investment in schools and universities will decrease slightly as people have fewer children.

The commission warned of challenges in hospital infrastructure. Large parts of the health estate were built during a boom from the 1960s to the 1980s. This stock will need to be renewed over the next 20 years.

“Low levels of investment in the 1990s and since the mid-2010s likely led to deterioration of the hospital estate, creating a backlog of renewals and maintenance,” the report warned.

The commission also recommended thinking smaller. The current investment pipeline of projects in planning or delivery is worth $275 billion in planning or delivery, spread across all regions. Small projects, worth less than $100 million each, make up 98% of the 11,925 projects in the pipeline.

When looked at by value, however, the balance of the pipeline rests in “a handful of unfunded mega-projects”.

The commission warned these projects, if funded, might “crowd out investment for the smaller, deliverable packages of work that contractors and communities depend on”.

The plan, a campaign commitment from National, was drawn up by the Infrastructure Commission and will be tabled in Parliament on Tuesday afternoon. It represents a 30-year roadmap for how the country should build the infrastructure it needs.

A theme for the plan was that New Zealand spends a lot on infrastructure, but maintains its infrastructure poorly, and therefore has infrastructure of relatively poor quality considering the amount spent.

Over the last 20 years, New Zealand has averaged spending about 5.8% of its GDP on infrastructure, which is one of the highest rates of spending in the OECD. Yet Bishop said the Government ranked near the bottom of the OECD in terms of efficiency of spend and came fourth from last in terms of asset management.

“Many central government agencies do not properly understand what they own or have long-term investment plans. The assurance system for new projects and long-term investments is fragmented and inconsistent,” he said.

The plan complained at the cost of consenting, estimating that the cost of consenting infrastructure cost about $1.3b a year.

The plan recommended that 60c of every dollar of infrastructure spending should be allocated to renewals and maintenance.

A key theme of the plan was that governments have tended to under-fund maintenance, whose funding is “routinely deferred in favour of the ‘new and shiny’”, according to the plan.

It said projects are “announced without going through a proper planning process”, often causing them to blow out.

The plan anticipated these spending trends would continue with up to 7% of GDP a year spent on infrastructure.