NZ Infrastructure is expensive to install and maintain yet is crucial for our way of life and future living standards. Photo / 123rf
NZ Infrastructure is expensive to install and maintain yet is crucial for our way of life and future living standards. Photo / 123rf
New Zealand faces a $1 trillion bill over the next 30 years to bring the country’s infrastructure up to scratch and to future-proof it to meet challenges, including climate change, new research from ASB economists shows.
The country’s population is expected to be anywhere from 500,000 to two million peoplehigher in 30 years, which would require an additional 175,000 to 700,000 dwellings and associated infrastructure, the ASB Infrastructure Report said.
On top of that, climate-change pressures were becoming more acute with the country’s infrastructure lacking resilience and being heavily exposed to natural disasters, it said. In February 2023, Cyclone Gabrielle is estimated to have caused between $5 billion and 7.5 billion in damage to public infrastructure – around half of the total cost of the weather event.
“The numbers are huge,” the report said.
The New Zealand Infrastructure Commission has estimated that close to $1t will need to be spent on infrastructure in NZ over the next 30 years just to catch up with OECD peers.
“This equates to around $30b per annum, or $115 per person per week for the next 30 years,” the report said.
“Trade-offs will have to be recognised. Sustaining higher infrastructure investment would require us to increase taxes, council rates or user charges, while lower investment would require us to accept less or lower-quality infrastructure.”
ASB senior economist Mark Smith said New Zealand had underinvested in core infrastructure for many years, which has led to a current infrastructure deficit of around $200b that had exacerbated capacity bottlenecks and hampered the productive capacity of the economy.
New Zealand spends about 6 per cent of GDP – about $20b–$25b per year – on infrastructure, the report said.
That made us one of the weaker performers in the OECD for infrastructure spending. New Zealand also had a lower spend on research and development (R&D). New labour productivity and GDP per capita were up to 30 per cent below OECD averages.
There is a strong correlation between poor infrastructure and poor productivity, the report said.
“Poor infrastructure hampers productivity, raises costs (e.g. congestion), limits flexibility and lowers the inflationary speed limit of the NZ economy.”
New Zealand’s infrastructure ranked the 28th best globally and is in the bottom half of OECD countries. Meanwhile, global rankings from the IMD World Competitiveness study for 2023 placed New Zealand as the 31st most competitive, putting it in the bottom half of OECD countries.
“The stronger performers on infrastructure relative to New Zealand tend to be higher income and more productive economies,” the report said.
New Zealand’s scores were comparatively weaker for Technological (39th) and Basic Infrastructure (33rd). New Zealand’s position has slipped. In 2019, NZ was the 21st most competitive economy and ranked 24th for Infrastructure.”
Mark Smith, senior economist at ASB Bank.
The report concluded that a new approach to building and maintaining infrastructure would help to boost the country’s economic performance over the long term.
“We need to be thinking about the way we approach infrastructure investment differently to ensure it is truly fit for purpose. That means choosing the right projects, considering new funding mechanisms along with updating policy measures to better manage demand,” Smith said.
The report also suggested that along with new funding mechanisms, political parties need to take a longer-term approach while becoming more aligned on future infrastructure needs to provide greater certainty for investment.
It was encouraging to see the coalition Government place high emphasis on infrastructure investment at a time of fiscal belt-tightening, Smith said.
“It’s promising to see the coalition Government cite infrastructure as a key priority in the 2024 Budget, with the aim to develop a long-term, sustainable pipeline of infrastructure investment,” he said.
“It’s clear, however, that broad consensus over public funding options would provide more surety. Additional funding may also be required from elsewhere, with opportunities for the private sector to step up.”
The report highlighted the nationwide ultra-fast broadband roll-out as a good example of what can be done with combined private and public investment.
The ultra-fast broadband project received $1.7b in government funding and $5b in private capital (from Chorus) between 2011 to 2022.
The project was completed within the designated timeline and budget, resulting in superior technological connectivity and improved coverage throughout Aotearoa. It covered close to 90 per cent of the population including 1.8 million homes, businesses and schools.
