The gigantic costs and organisational difficulties of improving New Zealand roads, bridges, pipes and other necessities have been laid bare in a new official report.
Its dramatic details include suggestions that New Zealand’s state debt could double in real terms if New Zealand is to get on top of this problem once and for all.
The consequence of years of neglect have been published often in the past. But the report, Testing our Thinking: Developing an Enduring National Infrastructure Plan, lays out the challenge in stark detail and tries to come up with a way forward.
The report was issued by the New Zealand Infrastructure Commission and has been welcomed by the Infrastructure Minister, Chris Bishop, who wants bi partisan support and a final version of the plan ready by the end of next year.
Dealing with this problem is vital, according to the Commission’s Acting General Manager of Strategy, Peter Nunns.
"The infrastructure we depend on today was built and paid for by previous generations,” he says.
“We need to leave future generations with just as strong a legacy, while making sure we don’t overly burden them with the costs.”
There have been multiple descriptions of New Zealand’s inadequate infrastructure. For example, the electricity grid is insufficient to handle the quantity of power that would go through it if the energy system were to be fully decarbonised. More work needs to be done on New Zealand ports to handle freight volumes and bigger container ships. Many roads are either potholed, or have been upgraded at huge cost.
According to the Infrastructure Commission report, these problems stem not from spending too little but from spending unwisely.
“One of New Zealand’s biggest infrastructure challenges is investment efficiency,” the report reads.
“New Zealand spends an average of 5.8% of GDP on public and private infrastructure. International comparisons show that is higher than Australia and the median OECD country. However, New Zealand ranks near the bottom 10% of high-income countries for the efficiency of that spend.”
The report blames this problem on rising costs of labour and materials, low productivity and inadequate means of assessing the effectiveness of spending on new projects.
The impact of all these problems is that spending on infrastructure needs to double in real terms for New Zealand to catch up. But the report says that would push up state debt by 98%, taxes by 21% or user charges by 38%, depending on which of these three alternative methods are chosen to pay for the work.
The report is not all negative about New Zealand. An accompanying graph shows infrastructure spending rising steadily over 150 years.
But that brings both the good and the bad. Pushing up the value of infrastructure steadily over many decades means some of it is bound to need to be replaced.
“Over the last few decades, for every $10 of new or improved infrastructure we built, around $6 of existing infrastructure became worn out or reached the end of its usable life,” the report reads.
“This suggests that in the long term, almost 60% of investment is needed to renew and replace existing infrastructure.”
In issuing proposals to deal with these multiple challenges, the commission’s document has several ideas. It says there should be clear forecasts of future needs, independent reviews of unfunded proposals to give decision makers a “high quality menu”, and advice on how to take better care of existing assets. There should also be work on reducing the costs of projects as well as a steady build-up of a workforce and leadership capacity to handle projects efficiently.
The Commission stresses it does not have a monopoly of good ideas and so wants feedback from the public on these matters.
This latest document has a rich context. In 2022, the Commission published New Zealand’s first Infrastructure Strategy, and has been asked by the Government to lead the development of that plan. In addition, the National Party’s coalition agreement with New Zealand First gave emphasis to infrastructure, with 13 roads of national significance to be built. The agreement with Act also stressed infrastructure though much of it was focused on cutting costs and red tape.
In addition, the Government is re-organising the delivery of infrastructure, setting up a National Infrastructure Agency, as required by its coalition deal with NZ First. The Infrastructure Commission will separately give the Government high level advice, and another agency, Rau Paenga, will give lower-level assistance. The Government has also made plain it expects there will be plenty of private sector finance involved in these developments.
13 Comments
And so we are being set up for PPP s (by whatever name)....the worst of both worlds.
"So when you as a politician are talking about public-private partnerships you are not in a world in which a powerful government is making a simple arrangement with a private party. You are entering a capital market of huge size and sophistication where you are far more likely to be the prey than the predator, where it is highly unlikely your local officials have the capacity to manage the wide range of risks involved to frame a sound decision. And where the advisors you seek from outside are almost certainly themselves enmeshed in the wider asset manager economy you are dealing with."
https://newsroom.co.nz/2024/11/04/govts-more-prey-than-predator-in-publ…
We have 400,000 people wanting a job or more hours. We have open trade with China who have ridiculous capacity to produce solar, steel, etc. We have many of the raw materials we need. In short, we have the resources we need to deliver 21st century infrastructure. We just need to remember how to do it and to make the space in the economy for the work. For example, do we want the ships arriving on our shores to be full of luxury SUVs or solar panels and steel? Do the top 20% of New Zealanders need to spend nearly as much on restaurant meals per week as the bottom 20% spend on all of their food? I could go on (and on).
No, Jfoe, we don't.
You are usually onto it, but not this time. This is the clue: “This suggests that in the long term, almost 60% of investment is needed to renew and replace existing infrastructure.” Translated: Entropy is now devouring 60% of the energy we have available.
And remember - entropy increases, and the input energy is steadily decreasing (globally - which means here in the medium term). Which means that 60% is a transition number, and the trend is upwards.
400,000 people at 100 watts each, is f-all compared to fossil energy.
Sigh.
Most infrastructure proposals from here on in, regardless of 'investor', just won't happen. Google World3, and pay attention to the non-renewable-resource trajectory. Then all of them...
I just don't buy the 'we're doomed, so why bother' narrative. The sun keeps on shining, the wind keeps blowing, lakes fill with water etc. We need to work out how to sustainably and invest in making the change to get there. I appreciate that is sounds a lot easier than it is.
FFS - I'm not saying we're doomed.
But the thing we may end up calling 'temporary modernity', is indeed doomed. It was a linear, extractive, waste-dumping process, scaled exponentially. Of course it was doomed.
Living 'sustainably' has been my goal for a long while - but I'll tell you, it involves NOT doing unsustainable stuff. Which is most of what we do.
Bluntly all my learning has taught me that the NZ government can fully fund all of its infrastructure spending through a deficit budget because it owns the NZ$. The pitfall is maintaining the value of that dollar. This can be managed by setting up an infrastructure ministry (AKA MoW) to oversee all of the works. Require that all companies who get contracts must be NZ owned and operated, and that foreign involvement is only through bringing in required expertise to train Kiwis in the capability. Employees must be paid fair wages and where ever possible all materials sourced locally. Support the economy; taxation will recover a fair portion of the costs but structure it so that excess profiteering cannot occur by the companies. Timeframes will be 50+ years so the ability to build and sustain the expertise should not be difficult. One last thing, the standard and overall quality of our roads should be raised as much as possible to support and sustain as efficient as possible travel, however the future may shape that.
Infrastructure has wide ranging economic returns across the entire economy, and its importance should not be understated in any way.
Interesting conclusion. I would have thought that given:
"“One of New Zealand’s biggest infrastructure challenges is investment efficiency,” the report reads.
“New Zealand spends an average of 5.8% of GDP on public and private infrastructure. International comparisons show that is higher than Australia and the median OECD country. However, New Zealand ranks near the bottom 10% of high-income countries for the efficiency of that spend.”
The report blames this problem on rising costs of labour and materials, low productivity and inadequate means of assessing the effectiveness of spending on new projects. "
The most important thing to do, is not to double the spend, but to hone in on fixing the problems here. These numbers are screaming inefficiency. Why are we so inefficient? What are we doing that others aren't? What aren't we doing that others are?
Because you won't get the political buy in possible to simply 'double the spend, double the debt, and continue to be inefficient'.
David Seymour's brother works for an infrastructure/civil works contractor, and I've dealt with him on a couple of occasions. He's very knowledgeable and is at the coal face like myself.
You can see the inefficiencies on the outgoing delivery side, generated from the incoming design, compliance & feasibility side. I think there is big gains to be made in regulation here, and as previous posters made - on the financing & tax side of things.
Probably gives David @ ACT very good insight (better than 90% of other politician's).
Does the Infrastructure Commission know why employers of apprentices in road construction and maintenance, drinking/wastewater/stormwater treatment and pipeline construction and maintenance have been excluded from Apprenticeship Boost payments from January 2025? Does anyone know?
Yes.
Essentially, Nicholas Georgescu-Roegen had it right.
As humanity has hit the Limits - note from his graphic the inputs - we have begun not to be able to afford ourselves. The most vulnerable/least vocal jettisoned first - in this country Maori, poor, young, renters.
Stand back one, and health, universities and local authorities are all failing.
The biggest failing - and it is at all levels in the country - is to stand back and see the big picture. The biggest reason, is probably an Emperor's Clothes one; fear of being exposed as having bet on a falsehood.
1) Is Figure 5 nominal $, or real $. It needs to be real $ (inflation adjusted) to tell any story about infrastructure investment per capita.
2) NZ is screwed:
a) local govt was given powers of general competence & so spent up large on everything except infrastructure, e.g Wellington
b) politicians make political infrastructure decisions, e.g. national roads of significance, so we get investment that is not efficient and has low benefit/cost returns.
c) we do have reasonably robust cost benefit assessment methods, but they are thwarted by a) & b) and are also no longer applied rigorously.
d) successive govts have run net inbound immigration rates well beyond the country's ability to build infrastructure at the same rate
e) NZ locked itself to the 30% debt /GDP limit which is absurd in the face of high population growth & thus has massively underspent on infrastructure
f) the current govt is hellbent on driving the economy into the ground and unemployment through the roof so even more of the best and brightest leave the country. You need stability in an economy to keep the resources and skills and to grow businesses. (The power price saga is a scandal. Businesses go to the wall while govt makes off like a bank robber with massive dividends and tax take for the power generators)
g) NZs wasted $500bn bidding up land prices with no productivity gain to the economy. That money should have gone into businesses like those that build infrastructure.
h) the unsustainable population growth is supported by massive subsidies for greenfield development and vehicle travel. Meaning we are having to spend far too much on roading & infrastructure services to new housing. That money is not available to go towards other infrastructure needs.
3) The infrastructure deficit is so large it has to be funded intergenerationally by 30+ year bonds. The US 30 year is at 4.25% so NZ would be that + the NZ premium. Its simply absurd we would want to fund via PPPs which would require a ~15% return.
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