Infrastructure NZ's Paul Blair tells Tim McCready that infrastructure investment and construction will play a major role in New Zealand's economic recovery programme – but central and local government collaboration is required to make it happen.
Infrastructure NZ – New Zealand's peak infrastructure body representing 140 public and private sector industry members – says the Government's response for the infrastructure and construction sector has been quick, clear and commendable.
As the Government looks to shovel-worthy projects as part of New Zealand's economic recovery programme, Infrastructure New Zealand has put forward guidelines on what these projects should include in order to ensure the work is appropriate and does not hinder future long-term investments:
1. Maintain and upgrade – maintenance contracts tend to be more labour intensive, less complex, and more easily apportioned into smaller pieces so companies of all sizes can participate.
2. Invest in no-regrets sectors – some long-term needs won't change in a post-Covid-19 future (e.g. clean water, healthy homes, safe hospitals).
3. Roll projects quickly into programmes – dozens of disconnected projects could unhelpfully compete for labour and supplies. Coherent programmes of work will be more efficient and achieve better value-for-money and outcomes.
4. Choose proven delivery models and partners – collaborative techniques (e.g. alliances, early contractor involvement) between trusted partners are ideal for managing risk while moving fast.
5. Embrace social procurement – supporting local businesses, apprenticeships, and all parts of our communities can ensure our investments generate wider benefits, even in the short-term.
6. Leverage local government – every $1 of extra revenue that the Crown gives to a council can be matched with $2.50 of borrowing, putting $3.50 to work in the economy. Local government should be a key partner to the Crown in fiscal stimulus, but Crown must provide funding to enable the Urban Growth Partnerships promised in its Urban Growth Agenda.
Partnering with councils
Infrastructure NZ chief executive Paul Blair says now is the time for regional and central government to collaborate and tackle projects that will improve outcomes for the bulk of New Zealanders who live in major centres – particularly since councils have a significant need for infrastructure investment but face substantial funding issues.
"Rates provide an average of only 60 per cent of council revenues – which some councils are already choosing to freeze or cut. The rest comes from more commercial sources like developer contributions, fees for public services, or dividends from airports, ports, or stadiums. These too are being severely hit by Covid-19," he says."
"Hard-hit councils require financial support from central government that is tied to shared priorities through urban growth partnerships."
To put the challenge they face into context, he explains that individually, New Zealanders pay roughly $1125 per year to council, but $15,250 to government.
"It's easy to see that is not equitable when local government owns roughly 40 per cent of the country's infrastructure – the same as central government – but only has about a tenth as much money to maintain and upgrade it."
He says the growth councils – Auckland, Wellington, Tauranga, Queenstown, Hamilton – make up a majority of our population, and should be expanding their operations at this time.
"Under an all-of-government approach, councils should be the very definition of shovel-ready. But instead their revenues are going down, and unlike central government they can't go and borrow more."
He points to Tauranga City Council as an example, which recently announced that its revenue would be reduced by between 15-25 per cent.
The looming funding issue for Tauranga could see some $300 million of housing-related infrastructure stopped. It cannot fund long-term planned capex due to cost increases, population growth and leaky building claims that would mean it would breach its debt cap without politically unachievable rates rises.
An NZIER report shows the 10-year impact of Tauranga City Council's failure to invest in local pipes and roads could be:
- a housing shortfall of 8,436 units
- cumulative GDP foregone of $2,547m
- 1,580 - 2,320 construction jobs lost, worth an additional $118-$174m of GDP foregone
- house price rises of $702,082.
"If you give $1 of new income to a council, they can go and borrow $2.50. But if they lose a dollar, they also lose the ability to fund $2.50," explains Blair.
In addition, the loss of this infrastructure would see significant lost opportunity for Crown revenues, impose further costs on the Crown (assuming accommodation supplement and other housing-related costs rise) and would lead to spiralling wellbeing losses.
Blair says the counterfactual is that if Crown gave $100m of new income to TCC, it could borrow an additional $250m, creating enough headroom for the capex to continue. The cumulative GST on $2,547m of GDP is $382m – significantly exceeding the Crown's initial $100m investment.
He says that while central government funding is urgently required, this shouldn't be seen as a 'free lunch' for councils. As with all good partnerships, both the government and councils will need to show partnership behaviours, and rapidly align on win-win national, regional and local objectives and outcomes.
"We all share a common goal to re-inflate the economy and adapt to the new normal. Urban growth partnerships are a core part of the Government's urban growth agenda, we now call for these to be funded and delivered at pace."
Infrastructure NZ says if the Government can replace, or even enhance, lost council revenue, then local works in local communities can restart at great speed.
"Local government is where some of the greatest need is and where the greatest leverage can be exerted," says Blair.
"In these times partnership will be essential. Central and local government need to be working together, not at cross-purposes – he waka eke noa."