David Snell and Aaron Quintal: Govt in bind over business wish list

Opinion

There's no quick fix for demand to invest in ageing infrastructure, write David Snell and Aaron Quintal.

Each year, around Budget time, we ask our clients to tell us the single biggest thing the Government can do to help grow their businesses.

Faster infrastructure development is now the clear leader, well ahead of resource management reform, lower company taxes, and research and development funding.

The other big concern is, of course, the Auckland housing crisis, with recent stories of homeless families and house price inflation weighing heavily on our clients' minds.

Commentators have highlighted the Government's record low costs of borrowing as evidence that the time is right for a big boost in infrastructure investment.

If only it were that easy.

Let's be honest: unless planning and consents are well under way already, there's no chance we'll see "shovels in the ground" until at least 2018.

And this Budget is in the second year of the electoral cycle. Any big announcements this week could be forgotten by Election 2017.

John Key and Bill English have heard the infrastructure and housing messages loud and clear. The problems have been bubbling for a while.

In August last year, the Government's largely ignored National Infrastructure Plan starkly set out the problems. With the rider inevitable in any government plan that "we generally have a good infrastructure base today", it acknowledged our assets will soon need replacing.

One number stood out to us: 42. Our schools have an average age of 42 years. They're in poor shape. And more than 50 per cent of our social housing is more than 42 years old.

One-third of Housing New Zealand's stock is in the wrong place or of the wrong size to meet Kiwis' needs. To cap it all, the average New Zealander will be 42 by 2042, up from 38 today; the ageing population demanding more hospitals but relatively fewer schools.

But calls for tens of thousands of new homes can't be met overnight. And a hike in infrastructure spending runs counter to English's workmanlike approach to our nation's finances and his desire to make the absolute most of the last dollar of government spending.

Take Transmission Gully, a 27km planned stretch of motorway north of Wellington. Meaningful consultation started in 2008, consents were gained in 2012, construction began in 2014 and the motorway will be substantially complete by 2020. That's 12 years for a top priority project.

Auckland's extra Waitemata Harbour crossing stretches out even further: perhaps 2030 if we're lucky.

So what could be on the cards for tomorrow? Budget 2017 will be about what's happening now. We expect to see English trumpeting progress on projects such as:

• Pushing on with some critical Christchurch projects (the Convention Centre, Metro Sport, Justice Precinct and the Southern and Eastern Frames).

• Ongoing acceleration of the Auckland City Rail Link.

• The upcoming Auckland Transport Alignment Project report, considering key initiatives across the city.

• Unprecedented investment into urban cycleways.

That adds up to lots of rhetoric about the Government's current big investment. But we just don't see how English can wave a magic wand to solve our infrastructure deficit.

That goes for housing too. Expect reforms around Housing New Zealand's approach, building on the Invercargill and Tauranga divestments of existing dysfunctional stock, ideas for freeing up supply and for providing faster emergency accommodation. But if a quick fix were out there, it would already have been tried.

What we've also heard from English is a need to reduce government debt. He wants to get it down to 20 per cent of gross domestic product by 2020 (it's around 26 per cent today). It's a tough target that will require the Government to deliver a few more surpluses.

English's real concern is to ensure New Zealand is well placed to withstand any future economic downturn.

Some have suggested he's chasing shadows, with the Treasury's projections of economic growth likely to settle around a rosy 3 per cent a year over the next four years. But we think English is right to be cautious.

Worldwide, recovery from the Global Financial Crisis in 2008 has been anaemic and problematic, with political uncertainties on the rise in the United States, Europe and the Middle East, and debt levels not yet under control.

The two economies that matter most to New Zealand, Australia and China, face headwinds around commodity prices, consumption levels and demand for our goods and services. We don't see a sustained global recession as likely, but you'd be bold to discount the possibility entirely.

So we can see why English hasn't raced to endorse Key's mooted $3 billion tax cut, a figure apparently plucked from thin air. To give a sense of the tax cut we're not getting, our back-of-the-envelope calculations suggest $3 billion would buy a tax cut of around $40 a week for a worker on $60,000 a year. Watch this space next year.

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David Snell is an executive director at EY and Aaron Quintal is an EY partner.