Infrastructure Minister Chris Bishop has confirmed new Roads of National Significance will all be toll roads in a speech to a local government conference in Wellington.
It is part of potentially significant change in how all sorts of new infrastructure will be funded.
Bishop said the Crown wants to move away from the traditional model of borrowing money to build free projects that are paid off over time by taxes and rates.
Some things will still be paid for in that way, but every significant infrastructure project that wants government funding will have to look at user-pays and private finance first.
Projects will only be funded with public money if there is not a way to pay for it with private loans and charges on users. The new motorways will be the first example and will be funded by tolls.
“Our expectation is that every significant infrastructure project that seeks support from the Crown will consider opportunities for user-pays funding and private financing,” Bishop said.
“If such opportunities are not available, we will expect to understand why and what the options are to ‘bridge’ to those opportunities”.
Treasury has been asked to develop and publish a set of principles that will guide how the Crown chooses which things receive public funding and which need alternatives.
The Minister told those listening to his speech that he understood this was a big change.
“The work programme is immense and ambitious. Some of it will be, as I like to say, ‘edgy’. That’s political code for ‘controversial’,” he said.
Cabinet has agreed to a broad work programme that will switch up how the Crown and councils fund and finance infrastructure.
The paper presented to senior ministers included a helpful breakdown of the difference between “funding” and “financing” — terms which are often confused but are distinct.
Funding is money that is allocated to a project from a revenue source such as income taxes, property rates, or user charges. Financing refers to borrowing money, or striking an equity deal, to cover the upfront costs of building the asset.
As the Cabinet paper says: “Ultimately, funding is needed to repay any financing”.
This means new financing tools, such as public-private partnerships, cannot build new infrastructure projects without a correlating source of funding.
Traditionally, financing has come from the Government or council issuing bonds and using taxes as the funding to repay those bonds. Bishop wants to do less of that in the future.
He wants more projects to be financed through the likes of investment funds, and be funded through user charges, such as road tolls.
Price signals
Taxes and rates could be an appropriate source of funding, he said, but New Zealand’s heavy reliance on them had meant there was no price signal for where investment was needed.
The Infrastructure Commission has advised that it will be difficult to fix the infrastructure deficit simply by building more things. We also need to use what we have more efficiently.
“One way to achieve this is through changing the way we pay for assets and services to better manage demand. So yes, that means congestion charging to manage demand. It means water meters,” Bishop said.
If this Coalition Government had been in charge of the $5.4 billion City Rail Link train network in Central Auckland, it would have charged a windfall tax on nearby properties to fund it.
“We really missed a trick … landowners in and around the new stations are getting windfall gains as a result of public investment in a transformational new public transport infrastructure,” he said.
(Businesses based around the City Rail Link route during construction likely feel they've been getting the opposite of a windfall as construction has dragged on for years. A targeted hardship fund was set up to help Auckland small businesses impacted by long running disruption from construction).
The Ministry of Housing and Urban Development has been asked to design levies, targeted rates, and other contributions that landowners can be asked to pay for future projects.
The list of user charges goes on. Electric vehicles will need to pay road user charges, just like other cars and trucks, and toll will be imposed on existing roads that are too busy.
“The next step is time-of-use pricing and congestion charging, to better manage demand on our roads and get more out of our existing assets. Tolling reform is part of that,” he said.
Constructive opposition
Labour’s local government spokesperson, Kieran McAnulty said he was supportive of using tolls to pay for new motorways, as long as there was an alternative route and fees were set at affordable levels.
“There is no point in building a new road for the sake of productivity, if workers who need it to get to their jobs cannot afford it,” he said.
McAnulty also said the party was open to using public-private partnerships (PPPs) despite traditionally being reluctant due to some poor performances, such as Transmission Gully.
Many PPPs had ended up costing the country more than they would’ve if the Government had just paid for them in the first place, he said.
“But we recognise that with such a deficit being faced around infrastructure that there has to be a different approach [now],” he said.
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