Dr Matthew Birchall: NZ’s roading problems can’t simply be patched over

The number of potholes on the country’s highways has more than doubled since 2017.

Opinion

The number of potholes on the country’s highways has more than doubled since 2017. In 2022 alone, more than 54,000 needed urgent repair.

Yet problems with how New Zealand’s roads are funded and managed are deeper than even the biggest pothole. And they can’t be patched over with measures like National’s proposed Pothole Repair Fund.

Structural reform is needed.

While New Zealand was once a pioneer in road pricing strategies, the National Land Transport Fund has gradually grown disconnected from price signals.

Some vehicles are given lengthy exemptions from road user charges for reasons that have nothing to do with the cost they impose on the roads. Auckland’s regional fuel tax has turned into a generic slush fund for projects like ferry terminals and cycleways. And the National Land Transport Fund itself has turned into a catchall for other projects – like rail and public transport.

While funding supplied by road users through road user charges and fuel excise duties usually seems to roughly match spending from the fund on roads, policy has seemed to be designed to make it hard to tell. We have a system that charges road users for the use of the roads. They generate a stream of revenue for the National Land Transport Fund to build and maintain roads. But the roads are falling apart.

Either road user charges are not high enough to cover the actual costs of running the system, or the system has prioritised new roads and safety improvements over maintenance, or the system has become worse at managing itself. It is hard to believe funding decisions reflect what road users would want.

As Patrick Carvalho noted in ‘The Price Is Right: The Road to a Better Transport System’ (The New Zealand Initiative, 2019), the “average New Zealand driver is not getting the best deal from the way roads are being funded. For one, we are paying for our streets and highways roughly the same way we did 50 years ago, despite technological advances and global best practice”.

The Act Party’s transport policy released on Sunday recognises the underlying problems and makes some notable moves in the right direction.

Rigorous cost-benefit assessment seems to be more the exception than the rule in transport decisions.

Act proposes public-private partnerships (PPP) as a way of winnowing projects. If a private partner expects the tolls it collects on a new road would more than cover the cost of building and maintaining it, that’s a strong signal the road is worth building. It also ensures those who benefit from the road are the ones who pay for it, over time.

Although toll roads are common overseas, New Zealand currently has only three toll roads: the Auckland Northern Gateway, the Tauranga Eastern Link and the Tauranga Takitimu Drive. Penlink north of Auckland will increase the total to four.

Just look at the success of the Northern Gateway Toll Road. Waka Kotahi New Zealand Transport Agency has calculated that the toll route saved 1.23 million hours of travel time in 2022/23. That translates into a monetary value of $33.6 million – an excellent result for Kiwi taxpayers.

The many international examples of successful toll roads are just as instructive.

Our roading issues can't just be patched over.

Ireland, which hosted The New Zealand Initiative’s business delegation in June/July, utilises the public-private partnership model to operate an effective tolling system. Private partners fund and finance the construction and maintenance of new roads and tunnels. In return, they are granted the right to levy a toll for a set period, after which ownership reverts to the Government.

It has proved popular. Since the new millennium, Ireland has used the PPP model to build 13 roads and two motorway service areas, eight of which rely on toll revenue.

But at least in New Zealand, tolling only really seems cost-effective on roads that get a lot of traffic. The infrastructure for collecting tolls does not come for free – though that technology just keeps improving while reducing in cost.

And at least some of New Zealand’s reliance on PPPs has seemed to have been about dealing with funding and financing constraints. They let Waka Kotahi pay for the roads, either through tolls or through collected road user charges and excise, over time. But making it possible to issue debt backed by those roading revenues could be a more direct solution.

And that starts pointing back to an older model for running New Zealand’s roads that may be worth revisiting when combined with better ways of funding and financing projects.

Maurice Williamson’s ‘Better Transport Better Roads’ (1998) proposal outlined an elegant user-pays system.

In Williamson’s plan, funding for roads would no longer come from rates. Instead, a Crown-owned entity called Transfund would be fully funded through a levy system. Transfund would be responsible for recommending the rates of these charges to the Minister of Transport.

Regional road companies would manage local roads, while a Crown-owned company called Transit would operate state highways and motorways.

These public road companies would be tasked with operating as successful businesses, like other state-owned enterprises, with an exclusive focus on managing roads.

The major upside of the Williamson proposal is that it treats road-user charges as foundational: that is, the link between user payments and what users get from those payments would be clearly signalled. Transfund would commission new roads based on user needs, and the public companies would oversee their maintenance and operation.

Act transport spokesperson Simon Court has made hints in that direction, suggesting Act would establish an independent state-owned enterprise, Highways New Zealand. The entity would be expected to pay for itself through user fees, including a return to government on capital expenditure.

Public road companies would introduce pricing strategies as cost and feasibility were demonstrated – as opposed to it being a political decision for ministers. This would encourage innovation and efficiency.

New Zealand’s current land transport policies have us on a road to nowhere. Implementing a more robust road pricing system can help us change course and build a network that benefits everyone.

Dr Matthew Birchall is a Research Fellow at the New Zealand Initiative, focusing on infrastructure and the housing market.