Grant Robertson promises a wall of transport demand into the future

Construction work on Transmission Gully, north of Wellington. The major focus of the Government's new infrastructure programme will be on transport. Photo / Mark Mitchell

COMMENT:

The decision to focus the lion's share of a major infrastructure programme on transport is not only about productivity, it is about pragmatism.

It also appears to be aimed towards boosting business confidence, showing certain sectors that whatever else might happen in the economy, there will be a wall of demand coming from the capital.

Finance Minister Grant Robertson announced plans to spend an additional $12 billion on infrastructure as he presented a half-year economic and fiscal update showing the New Zealand economy is cooling.

Although there were no specific projects named in the programme, most of the money will certainly go towards transport, and possibly almost all of it.

A third of the money simply slots into a multi-year capital Budget which will be allocated in the future on the needs of the period.

Of the remaining $8b, $6.8b will go towards new "shovel ready" transport projects.

Another $300m will go towards regional initiatives, with some hints yesterday that some of this could also go towards transport projects.

Robertson said the projects which will be announced will reflect the focus of the Government, with both road, rail and cycle and walking projects.

But there does seem to be a chance that road projects are back in vogue for the Government.

During his presentation, Robertson refused to say whether the projects could include some of National's so-called roads of national significance.

Although building new roads may be less transformational than the Government hoped, it may also be smart politics.

Not only are such projects popular with many voters, they can provide measurable productivity gains.

Robertson said the net effect of the infrastructure spending would be a $10 billion gain in New Zealand's nominal economy.

Finance Minister Grant Robertson. Photo / File

The focus on roads also appears to confront an inconvenient truth for the coalition. In many instances, it has ambitious spending plans, but it has struggled to get them under way.

Both KiwiBuild and the Provincial Growth Fund have struggled not for a lack of money but a lack of capability to deliver on projects able to spend it.

Asked about the issues the Government has had getting projects under way, Robertson noted that the New Zealand Transport Agency, which administers the national land transport fund, has "a pretty good record of getting money out the door" compared to other agencies.

It seems that in part the focus of the Government on what it will spend is driven by what it can spend.

How quickly the money will be spent is still the subject of conjecture.

While the Beehive is understood to believe it can spend more of the money over the next five years than Treasury does, economists at several organisations suggested capacity constraints may be slower.

But for the wider purposes of the Government, what is important is the signal the spending sends.

Almost since the day it took office, the coalition has been under fire from the business community for creating an environment of uncertainty.

Wednesday's announcement signals a major source of demand in the civil engineering and construction sectors.

Although the capital spending may not prop up the economy in the way some might expect, it should provide certainty that demand will hold up for years to come.