Covid 19 blows $350 million hole in transport fund, fears infrastructure projects might be cut

Officials predict a $350 million hole in the fund used to build and maintain roads and pay for public transport subsidies.

Officials warn the Government may have to trim back on infrastructure building unless a new funding source is found.

The Government has already given Waka Kotahi - NZ Transport Agency a $2 billion loan, but officials warn it will need even more help over the next three years to maintain the current level of building.

Road building and road maintenance is paid for out of the National Land Transport Fund (NLTF), which is funded mainly by petrol taxes and road user charges. The fund disburses about $4b a year.

Recently, the fund has come under strain as the Covid-19 pandemic has meant people drive less. People are working from home more and not going out as much.

Within the space of six months, between last year's Budget and the Treasury publishing its HYEFU forecasts in December, Treasury made dramatic revisions to the amount of money it believed Waka Kotahi would take in revenue, slashing it by $350m.

This year, Treasury reckons Waka Kotahi's revenue will come in 3.6 per cent lower than forecast, a drop of $158m. Lower than usual revenue will remain a problem in 2024, at the end of the current three-year investment programme, known as the National Land Transport Plan (NLTP). Waka Kotahi's revenue will be $353m lower than expected between now and then.

Officials said 82 per cent of the decline in revenue would be in the form of reduced fuel taxes (rather than road user charges), "reflecting that personal travel significantly decreased while freight, as an essential service, broadly carried on as normal".

The figures are contained in a paper warning Transport Minister Michael Wood of the shortfall, released to the Herald under the Official Information Act.

Wood said the fund "primarily collects revenue from fuel excise duty, road user charges, vehicle and driver registration and licensing, each which has been impacted by Covid in the short term to some degree".

Wood said investment from the fund, would help minimise the impact of Covid, as the economy would get back to normal faster.

[T]he Government is investing a record amount in infrastructure to reconnect New Zealanders and support our economic recovery. In turn this will help minimise the impact of Covid on the fund," Wood said.

National Party transport spokesman Simeon Brown said the Government should look at the expenditure side of the ledger, as it faces lower revenue.

"The Government wouldn't have a transport funding hole if they hadn't wasted millions on their pet projects such as the Auckland Harbour Cycle Bridge which cost taxpayers $51m before it was cancelled, 'Let's Get Wellington Moving' which has paid $35m to consultants without any construction, Auckland Light Rail which has cost over $50m but has had no delivery… the list goes on," Brown said.

National Party transport spokesman Simeon Brown. Photo / Brett Phibbs

Brown suggested the Government could also look at trimming rail funding, which gets about $150m from the NLTF as a result of changes made by the current Government.

"The Government should also remove rail from receiving funding from the National Land Transport Fund which would save $150m each year. If there isn't enough for our roads, why are they spending our fuel taxes on railways?" Brown said.

Wood said he was "confident" projects commited to would be delivered. He said the most recent transport spending plan had been put together in a way that factored decreased revenue.

"The National Land Transport Plan 2021-24, was produced based on the expectation of decreased revenue and that there will be a return to forecast levels of demand in the medium-to-long term," Wood said.

The picture is even worse over the long term, with revenue forecast to be out by $551m over the next 10 years. The figures assume the Government's climate-change policies are revenue-neutral on the fund, meaning each dollar spent is recovered somewhere else. However, officials warn it is "unlikely this would be the case".

The numbers also do not take into account the shortfall arising from the Government's decision to temporarily cut fuel taxes by 25 cents (and road user charges by the equivalent) for the next three months.

The $350m cost of this policy is being met with money from the Covid-19 fund, but there have not yet been any announcements about how to unwind the cut after the initial three months have elapsed, and how that would be paid for.

There is some optimism, however. Overall, the picture for the NLTF improved from 2020 to 2021. There is still some $42m of "flexibility" in the programme.

Officials suggested Waka Kotahi could draw down two different Government loans, to which Waka Kotahi already has access. One is a $175m Covid loan facility, which must be paid back in four years; the other is a $2b long-term loan. Officials warned that using this would "need to result in reduced expenditure", to take debt repayments into account.

"The main risk of using debt to cover NLTF expenditure is that future revenue hypothecated for transport projects will instead be spent servicing debt," officials warned.

Treasury and the Ministry of Transport are currently reviewing the sustainability of fuel taxes in the future. Officials say the "Land Transport Revenue Review" will also look at how Waka Kotahi can repay its debts.