Our infrastructure underpins our economy and society. Generations of New Zealanders have built infrastructure that allows us to connect with each other, receive services, and move products to market. Our networks of transport, energy, water and data will be critical for the economic growth and prosperity of Aotearoa New Zealand, coupled with our social infrastructure such as schools, hospitals, and housing.
Often during an economic downturn, governments commit to substantial infrastructure investment because it can drive short-term economic activity and have long-term productivity gains. The Minister of Finance has acknowledged this by making infrastructure one of her five priorities for Budget 2024. However, with the need to keep a watchful eye on inflation, there has been caution with short-term infrastructure expenditure and it is likely the Government wants to see a dose of realism as to how many projects New Zealand can deliver at once.
In Budget 2024 the Government announced $7.5bn of capital over the five-year period that is not yet allocated to projects. That means we still have to wait to see which projects will go ahead.
$1bn of this is a top-up to the National Land Transport Fund, additional to the $2bn previously announced for the delivery of the draft Government Policy Statement (GPS). Outside the NLTF there is also investment and reprioritisation for rail - Auckland gets $159.2m for the Rail Network Rebuild programme, and KiwiRail gets another $200m for rail upgrades but will need to give back $180.7m from rail resilience initiatives. There is also $107.7m of operating funding for one year of support to Auckland and Wellington’s metro rail services, but this is time-limited and how metro rail will be supported in the future remains to be seen.
Outside transport, the Government has confirmed the $1.2bn for the Regional Investment Fund and set aside $5.1m to establish the National Infrastructure Agency - confirming that it will lead PPPs and City Deals. $1.48bn has been added for school property upgrades and expansions. The Waikeria prison expansion was reconfirmed and Kainga Ora’s large-scale projects will need to save $200m operating and $235m capital.
We are hopeful that the National Infrastructure Agency, in conjunction with the Infrastructure Commission, will give us a renewed focus on maximising the benefit from our infrastructure investments and ensuring we have a stable pipeline of well-executed projects.
With the cost of living putting pressure on families and businesses, New Zealand needs to maximise the value of every dollar spent on infrastructure. We can do this through five key moves:
1. Making better use of our existing assets, through pricing and digital solutions.
Many of our assets have surplus capacity if we are thoughtful about how we use them – a road can carry more people if they are travelling on buses rather than cars or at different times of the day.
2. Proactive maintenance of our assets (and factoring this cost into initial investment decisions).
Sound asset management provides higher quality services to New Zealanders and reduces the large rebuild costs for assets that have been run down. We need to utilise the digital innovations that other countries are adopting to improve the data we hold about our assets, identify faults early, and schedule our maintenance.
3. Improving the efficiency of our design and construction processes through collaborative delivery models.
Taking a disciplined approach to scope changes, and utilising more collaborative forms of delivery used in the UK, Canada and Australia, New Zealand, could strip cost out of major infrastructure projects and allow more projects to be delivered.
4. Drawing in other forms of funding and financing to reduce the call on taxpayers and ratepayers.
Real value is generated from infrastructure so there is a case for others to contribute to the cost through user charges, levies, value capture, and property development (e.g. around a train station). Added to this, the Government has been clear that it will utilise private finance to smooth the cost of infrastructure over generations.
5. Taking a long-term, cross-sector approach to our investments that consider how we want our cities and regions to grow, and how we build resilience in areas that are at risk of the effects of climate change and extreme weather events.
Proactive and collaborative planning can save money by coordinating delivery and ensuring investments are made that complement each other – the benefits of building new transport infrastructure out to a new greenfield development will only be seen if the local council can afford the new water and local roads required.
Stephanie Ward
Partner – Deal Advisory
KPMG in New Zealand
