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.
62 Comments
Not sure. The Lyttelton road tunnel was tolled one way for many years and nobody objected. In the USA bridges, for instance the Walt Whitman, have always been tolled. On top of that, given the anti car brigade, might it not encourage riding a bike instead of paying a toll.
Yes, there has to be a different approach.
But this is the same approach, in big-picture terms, and it's the big picture which is changing.
The only question in town - or out of town - now, is: What infrastructure will be appropriate in the post-growth period?
Given that it will be permanent...
Toll everything built in the last 10 years and use a user pays model to find new roads. Taupo bypass = toll, Waikato expressway = toll. Napier expressway = toll.
Stop making things more complicated than they need to be and picking specific projects to toll.
Tolls should roll off after 10 years automatically and if people complain then build nothing in the area for an extended period of time.
Hugh. Taupo by pass was paid for by council (rate pateys) from the TEL fund which was created when Taupo sold its three power generators near hatepe. And the land that was used was swapped with contact energy who wanted council consent to draw energy from other geo fields. Central govt didn't contribute at all. And like on here there were more naysayers about how it would make Taupo a ghost town and all the businesses would shut. Those people seem to have gone quiet as that by pass has made Taupo. One wmexamlle is now no cattle trucks/line haulers/logging trucks going thru the main centre with people trying to sleep in motels have a coffee or enjoy a walk.
Are you sure council paid for it ?. Very unusual for a council to pay for a state highway .
agree it has made Taupo a better place. what i can't understand is why Turangi hasn't capitilsed on it with more on the main road. We always stop at the Burger king /Z , but would be nice to have more choice . For a big feed , we wait till Angelenos in Waiouru. When they slap a 1 litre bottle of tomato sauce on the table , you know your in for a big meal.
"Toll everything built in the last 10 years and use a user pays model to find new roads. "
Yes. Let's do that.
The users doing the big damage to our roads are heavy vehicles. Also, our roads need to engineered far, far better for these heavy vehicles. Ten times better. And just for these heavy vehicles. Who pays for that?
So yes. Let's have a real - and honest - user pays model!
Anyone think this is what Bishop is talking about?
No. It just another conn to privatize the profits using public money.
Private financing will always be more expensive than govt/council financing. Higher interest rates and profit margin are the reason. Private financing will lead to more funding required, or less infrastructure within an affordability limit.
Better use of user pays funding could work well though.
To truly fund it you're looking at closer to $15 to $20 each way for some of the RONS and RORS given the existing volumes.
They will be underwritten by the govt and profits guaranteed. We'll end up paying for them.
Similar to pretty much every parking building business case council's have produced over the last 15 years. The council says it will be paid back by parking fees but they never are. Takapuna is the latest one, before that it was Ronwood Avenue.
"To truly fund it you're looking at closer to $15 to $20 each way ..."
For whom?
The heavy vehicles that do the most damage - by far - to our roads, while also requiring they need to be built 10 times better (even though they last far, far less than 10 times as long)?
Or for cars and other light vehicles that do little damage to roads and for whom the roads could be built at far, far less cost?
The northern toll road out of auckland, for years and years, the toll didn't even cover interest on the loan. The loan was still getting bigger until volumes and price rises finally started paying back the principal. And that loan did not cover the cost of building the motorway, it was a partial loan to 'bring it forward'. $20 - $50 is a more realistic toll these days if you want to actually do user pays rather than a token contribution.
What an absolute snore fest. Seems this government, and the public service more generally, are bereft of ideas.
In the space that I am interested, there needs to be bold vision that new growth areas are properly master planned, key roading, public transport and three waters infrastructure identified and priced, and commitments on how this infrastructure WILL to be funded.
Not more excuses for government to shirk their responsibilities, while simultaneously letting in 100k people a year!
New growth areas?
WTF?
The whole point is that society ALREADY cannot afford itself; what do you think 3 waters was about? What do you think permanently-above-inflation rates are about?
Reducing to a sustainable - meaning a long-term-maintainable - level of infrastructure, is the ONLY sane game in town.
All else is a waste of the remaining time.
If that is the goal we need to stop importing people at the ridiculous rate we have for the last decade. Otherwise house prices will just reach $1.5m.
I get that you are a deep green, but unless people are volunteering to get off the mortal coil you are somewhat barking up the wrong tree.
Despite public reservations about PPPs, we are finding ourselves pushed into them. Apparently, the Government cannot afford to buy the assets involved outright and the level of public debt is such that we cannot borrow to buy the asset outright. This is because the Government budgeting system is arranged to make it so.
In economist-speak, the Government budgeting system has "incentives" designed into it. Unlike the more usual understanding of incentives, these may be defined as biases and distortions intended to prompt a particular outcome. In plain English, the Government budgeting system is rigged.
The level of public debt that is represented as such a worry is confined to that reported on the public sector balance sheet. No one mentions the off-balance sheet debt. A PPP contract might extend over 30 or 50 years. It will involve an agreement to pay fees for that time and guarantees, typically, a particular income or return on assets for the whole of that time.
Legally, the obligations involved in these agreements are public debt, but it is public debt that does not appear on the public sector balance sheet. PPPs seem to solve only our debt problem because off-balance sheet debt is conveniently ignored.
The budgeting system and deceptive off-balance sheet accounting tricks involved in PPPs raise the spectre of Enron and its disgraced auditor, Arthur Andersen.
A key worry about PPPs is their potential to expose New Zealand taxpayers to an accumulation of hidden off-balance sheet debt. Unlike shareholders in a company, our liability for public debt is unlimited. Whether that debt is reported on the government balance sheet or hidden in the off-balance sheet, we guarantee it. Because of this we should insist on control over its incurrence. This is Parliament's role.
The 1986 Constitution Act attempts to protect us from a negligent or plundering Crown. It requires all proposed Crown expenditure of public money and all borrowing to first be subjected to parliamentary scrutiny. But the 1989 Public Finance Act undermines the Constitution Act, and proposed changes in the Public Finance (State Sector Management) Bill make matters worse.
The Public Finance Act allows the form of debt represented by PPPs to evade early parliamentary scrutiny. But it does at least specify reporting requirements that allow parliament to find out about such debt afterwards. This might be a small consolation, but the requirement to present to parliament a statement of commitments and a statement of contingent liabilities does force disclosure about off-balance sheet debt. Link
by Audaxes | 15th Sep 19, 9:05am
Goldsmith a few weeks ago conceded the current level of net Crown debt, at 20% of gross domestic product (GDP), was “about right”.
If Goldsmith was honest, he would demand the government opened it's off-balance sheet NPV liabilities, in respect of Public Private Partnerships, to public scrutiny.
A recently released report in the UK was less than glowing about the extended costs of such projects.
NHS hospital trusts are being crippled by the private finance initiative and will have to make another £55bn in payments by the time the last contract ends in 2050, a report reveals.
An initial £13bn of private sector-funded investment in new hospitals will end up costing the NHS in England a staggering £80bn by the time all contracts come to an end, the IPPR thinktank has found.
Some trusts are having to spend as much as one-sixth of their entire budget on repaying debts due as a result of the PFI scheme. PFI was introduced by John Major’s Conservative government but its use proliferated in the Blair era. Link
Tolling existing roads is an expensive process.
It would require all vehicles to have a mechanism to do this 'automatically' to make it a 'cheap' way to collect for maintenance costs. We're about 10-20 years away from that. But, like you say, it will come. But for now, it's not realistic.
Bishop is 'smoke screening' the real issues ... yet again.
To be clear I was talking about State Highways which are funded by Central Govt not local roads which are funded by rates (with partial govt contribution).
We could roll out pricing for exisiting state highways in a couple of months, the technology is already there (number plate recognition).
I also agree that trucks should pay their own way, it would reveal rail and coastal shipping as being much more competitive than it currently seems. But National take huge donations form the Road Transport Forum lobby so we'll all pay more for roads and subsidise the trucking industry.
"Tolling existing roads is an expensive process."
It may well be but i would suggest that within a very short period of time (a few years) ALL vehicles will be required to have a gps tracker linked to both RUC and any tolling system. The electronic monitoring of RUC has already been foreshadowed (and is in use by some commercial operators) and extending it to toll roads will be relatively straightforward.
Agree on most rural roads , empty after 10 p.m .
But urban ones , I think they're underestimating the number of people thay actually have to be at work by a certain time. Or maybe they're not , and just see it as sitting duck revenue. Fair enough if there is a decent public transport alternative.
Rip the rails up and put heavy trucks on those routes... Time heavy transport sorted and paid for its own routes . I dont like the idea of tolling cars at all. I would favor higher private motor vehicle registration charges and increased fines for speeding etc . Above posters are correct heavy transport chews out roads ....
ABSOLUTELY ABSURD. This government has no idea how to run the country.
- Run unsustainable net inbound immigration rates over successive governments so that we run up a massive infrastructure deficit
- Don't put up petrol taxes as they should have been indexed upwards
- Then force NZers to pay for the infrastructure (roading) deficit as the end users.
- And propose to use regressive user pays tolls which drives further inequality and poverty.
- And have/maintain a narrow-based tax system
The proper response is to:
- Add capital gains tax + gift tax + inheritance tax
- Lower income taxes at the bottom end
- Apply congestion tolls only (& in urban areas only) with that revenue going to run improved PT.
- Fund infrastructure deficit highway upgrades through tax. (PPPs are either a) more expensive, b) fail & get bailed out, or c) extract monopoly profits.)
- fund the rest through fuel tax
- Manage the net inbound immigration rate at a sustainable level
“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.
Is it not the current govt and their ideology that is demanding these alleged Roads of National Significance? Ultimately it highlights a failure of councils and govt, and so called urban planning as many of these roads should have been addressed a long time ago.
“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,
Are they finally seeing the light? Take this thinking further and it suggests that most property gains arise from the infrastructure and communal facilities around it. So windfall taxes on all residential property gains and invest it back in the community?
“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
Who is demanding what though? Are people demanding to sit in traffic to work or is it the business demands and location design that is at fault? Maybe Housing and Urban Development theory needs a rethink too.
The key determinant of toll pricing will be:
1) the allowed rate of return (set by government) - this needs to be sufficiently attractive for investors.
2) the duration of the toll period where the investor gets to earn their return. The longer the period, the lower the toll.
The build - operate - transfer model has been proven to work around the world to
1) get infrastructure built quickly
2) reduce the debt and subsequent repayment taken on by government if the project was undertaken by government instead.
This will end up meaning infrastructure projects cost more overall than if the Government used its balance sheet to fund the projects itself. Government borrows at significantly lower interest rates than everyone else, and if these projects have a net benefit to the taxpayer then the projects would pay for themselves over time in increased tax take,
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