Bill English: 'We are not holding back'

By Bob Edlin

'If we hadn't had the Christchurch earthquake, we would be learning a lot from the Wellington one, but we've learned much more than we ever thought we would from Christchurch.' Finance Minister Bill English talks to Bob Edlin on the challenges of funding New Zealand's key infrastructure from a tight Budget

Finance Minister Bill English. Photo / Richard Robinson
Finance Minister Bill English. Photo / Richard Robinson

Most Wellington businesses were unscathed by the 6.5-magnitude earthquake on July 21, according to a Wellington Employers' Chamber of Commerce survey. The Government's infrastructural investment plans were unscathed, too.

The quake, one of a series which shook the north of the South Island and Wellington region in mid-July, essentially served as a reminder of what might have happened, said Finance Minister Bill English - "fortunately".

It's fiscally fortunate, too. Resources are running pretty tight, English - who also has Cabinet responsibility for infrastructure - says.

He gave the Herald this rundown:

* The Earthquake Commission has been cleaned out and is reliant on a Government guarantee.

* The funding for roads is well booked up and funding is stretched. A 3c/litre increase in petrol excise duty and an equivalent lift in road-user charges were imposed on July 1 for the Roads of National Significance programme and more annual increases in those imposts are programmed.

* The Government's broad infrastructure programme is fully under way using all available funding.

"So we are fully stretched," English says.

The Chamber of Commerce survey found only 5 per cent of 117 respondents would be making insurance claims and a maximum cost of about $570,000 was estimated by 45 businesses.

The quakes' impact on the Government has been minimal too - its infrastructural investment plans have not been changed, but English says they have highlighted the importance of resilience in the country's infrastructure.

"Any infrastructure owner knows very clearly now that they may have to deal with the consequences of a significant earthquake. That's partly about building standards but it's also partly about where they build and any business knows that they may have to have a back-up plan.

"So I think it has highlighted that resilience is now a vital part of the compulsory aspect of considering any infrastructure project."

The quake has also highlighted the issue of liability insurance. This is particularly relevant to the government sector.

"One of the risks we've identified is local government being uninsured or under-insured," English says.

"Christchurch taught us the real value - the real cost - of replacing local government assets, so local government has quite a job to do to tidy up its insurance arrangements."

In-ground infrastructure in Christchurch (roads and drains) calls for joint funding of almost $3 billion.

In addition there are civil projects (the convention centre, metro sports centre) and all council-owned assets which they can't replace on their own.

Some of those are insured, but not all, and while some are well insured, others are under-insured.

The council has outstanding insurance claims of about $900 million.

The Government wanted to work with local government "so they understand the full costs of a significant earthquake", English says.

Progress with the Government's infrastructure investment programme is "good", but he acknowledges the Christchurch earthquakes have stretched it "in ways we didn't imagine before".

The challenge is not about whether the Government is investing enough, he says. It is to execute what is going to be a substantial investment in rebuilding on top of its normal infrastructure programme.

The Government is putting about $15 billion into Christchurch, on top of funding for other major infrastructural programmes, particularly the Roads of National Significance.

Asset sales - by partially privatising the state's energy companies - would help the Government to fund its own direct capital needs for the next three or to five years - schools, hospitals, prisons and so on.

The key projects listed by English each call for capital spending measured in billions of dollars.

First, about $1 billion is being spent on schools, including Christchurch.

Then there's $1.6 billion on ultra-fast broadband, $3.5 billion on health infrastructure over seven years, $4 billion over seven years for school property, $5 billion for state highways over the next three years plus $4 billion for local roads and $2 billion for Auckland and Wellington metro rail over 10 years.

The KiwiRail programme involves about $4 billion, about $750 million of this contributed up front by the Government.

No holding back

"Those are the big bits," English says.

Some of those he didn't mention are nevertheless important to the Government's economic development plans, such as its commitment to invest up to $400 million in regional-scale irrigation schemes to encourage third-party capital investment.

The recently established Crown Irrigation Investments Limited will act as a bridging investor for regional water infrastructure projects, helping kick-start projects that would not otherwise get off the ground.

The Government set aside $80 million in Budget 2013 for that purpose - but there's more to come.

English disagrees that too much infrastructural investment has been earmarked for Christchurch and not enough for other parts of the country.

But he does acknowledge a lot has been committed to Christchurch.

"We have spent a lot of time getting the governance right so that Christchurch isn't gold-plating the projects that are government-funded, but for most of it there's isn't much choice.

"We've got to fix the hospital and the schools that are broken down and we've got to do the in-ground infrastructure - the horizontal infrastructure - there's no choice about that, or you can't live there.

"So I wouldn't say there's too much. What I would say is that it has highlighted a higher degree of awareness in the rest of the country."

But English says he is aware of concerns being expressed in other regions that they need more money to help with their infrastructure.

Calls for help with regional roading, for example, are "a hardy annual".

There has always been a discussion between local government and central government about the degree of subsidy needed for those roads.

The ability of local authorities to model road usage and costs has been significantly improved, however, "and that will make the discussion a bit more of an economic one and a bit less of a politicised one".

Though the mid-July earthquakes had no effect on the Government's infrastructural plans, English notes it might have an effect on specifications.

There were considerable plans for investment in Wellington - the Basin Reserve flyover, for example, and the so-called Ngauranga-Airport corridor aimed at getting four lanes through Wellington.

He says Wellington is well accustomed to earthquake risk and has been on the front foot in designing to meet the risk for some time.

"If we hadn't had the Christchurch earthquake, we would be learning a lot from the Wellington one, but we've learned much more than we ever thought we would from Christchurch."

As to the good fortune that no more demands were being made on stretched budgetary resources, English reiterates what he has said many times: the Government is trying to consolidate and get back to surplus, so if anything else was urgently required, "we would have to look to other sources of funding".

In an emergency, of course, "we can just go and borrow more money, but we prefer not to do that."

So are we flying by the seat of our pants, fiscally?

"The way we would see it is that all our current funding sources are committed," English answered.

"We are not holding back on investment - we are trying to get it done.

"And we are spending time tidying up the Crown's balance sheet so that we are in a strong position so that if there were emergency funding needs, then our balance sheet is strong enough to support further debt."

* More than $115 billion of infrastructure assets collectively owned by the people of New Zealand.
* National public services within tight financial constraints.

National Infrastructure Plan: The key challenges

1. The volatile nature of infrastructure funding creates a lack of certainty and continuity for infrastructure providers. There is insufficient use of the tools available to generate revenue and manage demand.
2. Poor co-ordination between different infrastructure providers leads to sub-optimal outcomes. Decisions over land use and infrastructure investment could be better integrated.
3. New Zealand's infrastructure is vulnerable to outages, including through natural hazards, and we have insufficient knowledge of network resilience at a national level.
4. Infrastructure investment is well analysed at the project level but there is insufficient consideration of how assets function as a network to address potential changes in demand.
5. The regulatory environment does not support long-term infrastructure development and contributes to unnecessary costs and uncertainty.
6. The performance of infrastructure assets is not transparent. It is not always clear who is accountable for decisions.

Future Investment Fund
Budget 2013 allocated $1.5 billion of new capital from the fund, which over the next few years is expected to receive and distribute between $5 billion and $7 billion in proceeds from the Government's share offer programme. The $1.7 billion raised from the May float of 49 per cent of Mighty River Power provided the first tranche of money into the fund.

This was on top of $569 million allocated in last year's Budget, bringing the total allocated so far to $2.1 billion. Future Investment Fund commitments confirmed in Budget 2013 include:

$426m: for the redevelopment of Christchurch and Burwood hospitals. As announced previously, this will be the single biggest building project in the history of New Zealand's public health system.

$50m: to speed up the School Network Upgrade Project, which enhances the technological capability of schools.

$94m: for the fourth year of KiwiRail's Turnaround Plan.

$80m: for irrigation projects, as announced previously.

Budget 2013 also set aside over $700 million in contingency for key projects, including:

* Building new schools.

* Christchurch's new justice and emergency services precinct.

* Supporting Canterbury tertiary institutions in their recovery from the effects of the earthquakes.

Because those projects involve commercial negotiations, the exact breakdown of figures still remains confidential.

State-Owned Enterprises Minister Tony Ryall says over the life of the fund, $1 billion will be allocated to hospitals and other health projects.

The Government has previously said that $1 billion of the fund will be ring-fenced for modernising and transforming schools as part of the 21st Century Schools Programme. In total, $219 million of that amount has so far been allocated.

The National Government established the fund to receive all proceeds from the state assets partially privatised under the mixed-ownership model.

- NZ Herald

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