New Zealand’s infrastructure deficit black hole stands at $210 billion and is growing, with the cost of Cyclone Gabrielle and the Auckland Anniversary weekend floods estimated at between $9b and $14.6 alone.
New Zealanders are currently suffering from a lack of basic infrastructure across our communities. From the substandard drinking water quality and overflowing stormwater drains to congested roads and unreliable public transport, not to mention the unplanned power outages and cell phone black spots.
These are all symptoms of our struggling infrastructure trying to keep up with the demands of our growing population.
The New Zealand Infrastructure Commission Te Waihanga says the country would need to spend $31b on infrastructure each year for the next 30 years, just to catch up. This equates to just under 10 per cent of our GDP annually, which is not only a massive amount of money but it is also unsustainable and largely unattainable.
Under-investment in our crucial infrastructure is one of New Zealand’s greatest long-term economic challenges.
The Government has recognised this gap and progress is being made.
Te Waihanga chief executive Ross Copland says there is a $92b pipeline of infrastructure projects committed to already over the next five years, not including Auckland Light Rail or a second harbour crossing.
Even if the $92b gets spent, it’s some way short of the $210b it’s estimated we need, and the deficit is likely to grow. This leaves around $118b to be found. If we don’t, our infrastructure aspirations, grand plans and in some cases just basic needs, will have to be scaled back.
At some stage, New Zealand is going to have to accept there is no future magic money tree and we will have to pay for a lot of this critical infrastructure differently.
New Zealand is already spending more on infrastructure than ever before. A greater share of our national income is going into public infrastructure and it’s still nowhere near enough.
More needs to be spent to improve what we already have, make it more resilient and adapt it to our changing climate. It’s estimated that we have about 80 per cent of what we need, but we must also build new infrastructure. Given that massive deficit, we know the Government doesn’t have the deep pockets to fund it all if we are to grow, prosper and protect our communities from climate change.
This will mean using a broader range of funding and financing options which will involve private sector involvement.
The days of low-interest rates are over. The Government is already borrowing to fund the recently announced $6b National Resilience Plan.
Borrowing in relation to building the long-term assets that our society needs makes sense. It is an intergenerational investment that enriches our lives.
The private sector has a role to play here to leverage funds and to finance this infrastructure at fair rates of return.
Public sector and private sector partnerships are a keystone of our economy already. We maybe just didn’t recognise or appreciate this.
In recent years, a few projects that were funded and delivered as public-private partnerships (PPPs) went pear-shaped and this model has been largely blacklisted in this country. However, we need to learn from these missteps and build on the success stories that we have also experienced.
The ultra-fast broadband rollout across the country was a great example of a successful PPP. The partnership between the Government and Chorus leveraged $1.7b of government funding to attract $5b of private capital. This programme was delivered on time and on budget and resulted in superior technological connections and coverage across Aotearoa. Think about how it helped us survive Covid lockdowns!
The private sector’s capacity to deliver the required level of development and help address New Zealand’s infrastructure deficit is under-utilised and provides a big opportunity to help overcome current challenges.
Our listed port companies are a good example of successful public-private partnerships.
Napier Port used the capital raised from its share market listing to deliver a new wharf, Te Whiti, which was constructed for $171 million, coming in below the original budget of $173m to $190m and ahead of schedule.
Our listed airports have also demonstrated the potential of private-public partnerships.
In all these cases, the local authority owners would not have been in a position to fund these developments needed in the timeframe required without a significant rates burden.
Local and central governments do not have the capacity to fund all of Aotearoa’s infrastructure needs.
Accessing private capital provides an ability to both bring forward projects that would otherwise have been delayed for several years and release funding for public — and often social — infrastructure that would otherwise not occur.
PPPs provide a sensible risk-sharing framework that’s widely used internationally.
It’s worth remembering that full legal ownership of the assets is retained by the Crown. No one is stealing our assets!
Our current policy settings mean that the delivery of public infrastructure primarily sits with the public sector, where infrastructure projects are initiated and driven by the local or central government, with the private sector coming in at the back end of the delivery chain.
The hope is that earlier consultation with the private sector, changes to the resource management system and a reduction in regulatory red tape will make private investment more attractive.
New Zealand will continue to miss opportunities in its infrastructure delivery, efficiency and scale by solely relying on the Government to fund improvements to our transport, water, and social infrastructure.
It’s time we as a nation changed our mindset and woke up to the harsh reality that the Government can’t pay for everything and a new path must be found.
· Michelle McCormick is policy director at Infrastructure New Zealand.
· Infrastructure New Zealand is an advertising sponsor of the Herald’s Infrastructure report.