Project Auckland: Hamish Glenn: The benefits of private investment for Auckland city

Hamish Glenn is policy director at Infrastructure New Zealand.

OPINION:

The Government has indeed significantly increased its investment in infrastructure, and increased its commitment to future infrastructure investment.

This includes not just the upgrade and shovel ready programmes but the $710 million it committed to three waters services, its identification of $15 billion of required health infrastructure investment over the next decade and the Lake Onslow hydro-scheme investigation.

The Labour-led Government in its first term also moved to unblock some of the funding/financing barriers to infrastructure delivery through the Infrastructure Funding and Financing Act (IFF), enhanced borrowing capability for Kāinga Ora and water sector restructuring.

The private sector will always welcome greater central government investment, particularly where the beneficiaries of investment are broad and difficult to either quantify or attribute.

But recognising that there is only so much that can be achieved through more central government spending and debt, and noting the limits on local government borrowing, there are some ways that the private sector can help.

Firstly, there are some activities that the private sector can provide on behalf of public bodies.

For example, private investors can finance, and private companies can manage new roads using toll revenue, lessening the need for public spending. The same can be achieved in rapid transit with some combination of user charges and land development uplift providing the revenue stream to pay off private sector debt.

Slightly different models can be applied in healthcare where, for example, instead of building and owning a new public hospital the Government instead promises to outsource a certain number of operations or some other service each year to a private provider who then expands or invests in a new facility which it owns. Charter schools were an attempt to apply a similar model in education, but the Labour Government has indicated it does not support this approach.

The other big opportunity at the moment is to apply some sort of targeted rate to an area benefitting from a new service, such as a road, railway, water treatment plant or pipe. The targeted rate would be applied to affected properties for, say, 30 years, and that revenue stream used to finance the construction of the asset.

This is the basic structure of the Government's IFF tool and may also be adapted by Kāinga Ora.

In each instance, private investors have much greater capacity to lend than we have to borrow, so the money is there, it's just a matter of getting the structures in place to enable private capital to link up with demand for services.

This will not only deepen capital markets and expand public services, but will help reduce the swings in infrastructure investment we see through the cycle, providing improved certainty for private sector service providers.

- Hamish Glenn is policy director for Infrastructure NZ.