National’s Infrastructure Plan

August 3rd, 2008 at 11:58 am by David Farrar

The major focus of Key’s speech was on investing in better in New Zealand. Major aspects of the policy/plan are:

  • Appoint a Minister of Infrastructure to oversee a co-ordinate approach to infrastructure development.
  • A 20 year infrastructure plan covering investment in roads, public transport, electricity, telecommunications and water.
  • Will take into account the changing world such as the need for more renewable energy and the growing price of oil.
  • $1.5 billion investment into an ultra-fast broadband network.
  • Designate a new category of state highway – a Road of Significance. These roads, such as SH1, will be a priority for funding as the core backbone of our roading network.
  • Introduce priority consenting for major national infrastructure projects, where a streamlined process will guarantee in law a decision within nine months, so that the consenting doesn’t take longer than the actual construction.
  • Will invest an extra $500 million a year on infrastructure (as well as the Broadband investment) on top of Labour’s proposed levels.
  • A total of $5 billion additional capital investment over six years, resulting in an increase of gross debt as a percentage of GDP of 2%.
  • Willing to do this as NZ does not have a debt problem, but a growth problem and the higher economic growth will pay back the investment over time.
  • Will introduce infrastructure bonds as an option for financing national infrastructure projects, and make greater use of public-private partnerships.
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33 Responses to “National’s Infrastructure Plan”

  1. rolla_fxgt (311 comments) says:

    This is the sort of policy we need to see, I just hope it gets the media attention it deserves. Its clear & to the point, but I assume it has further reading to back it up.

    I especially like the ‘Roads of National Significance’ idea, it means that the funding will go where its needed most, hopefully to a forward thinking capacity level, so that projects are built with spare capacity, and are easily expandable, not as is present, where by the time they are actually built they are already at capacity.

    I also like the idea of a minister of infrastructure, means someone has a decent understanding of what is happening & needed where and when. Probably also means that they will be able to schedule projects that have synergies to be constructed together, so that they end up costing less & deliver better outcomes

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  2. freedom101 (492 comments) says:

    Under Labour the relative size of government has risen dramatically, and government spending has gone up 32% in real terms. That is the fundamental reason why our economic growth forecasts are so anaemic. Government spending is usually far less efficient than private spending in terms of lifting national wealth.

    National appears to be promising to halt *but not reverse* this increase. Whoop-de-doo …. it ain’t enough to turn the country around. Key seems terrified of cutting or removing anything Labour has done.

    The net result of this wimpish lack of ambition for NZ will be an out-turn only mildly better than we would achieve by voting Labour back.

    Raising debt is a cop out. It would be far better not to borrow any more but to address the vast amount of useless spending brought in by Labour. A 32% growth in real tems has not produced any measurable benefits to NZ.

    A study released earlier this year showed that if government spending had been held in real terms, adjusting for population changes, the resulting tax cuts would have been enough to almost totally eliminate personal income taxes. This is the true opportunity cost of just buying into Labour’s spending bonanza. Come on National, you can do better. It seems that only ACT is really onto all the above. They will be getting my vote!

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  3. calendar girl (1,214 comments) says:

    A clear 20-year plan out in the public arena will be good for showing up crazy “pork barrel politics” ideas for what they are. Like an uncosted road tunnel under the PM’s electorate. Or an uncosted rugby stadium on the Auckland wharves.

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  4. reid (16,227 comments) says:

    Home-grown scientific developments such as high temperature superconductivity hold great promise for infrastructure development. For example, such technology can be used to greatly reduce the size of wind turbines while preserving the output.

    I would hope the final plan will include elements designed to assist in coordinating such research and facilitate speed to market and export opportunities.

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  5. gee90 (90 comments) says:

    This talk of casually increasing debt reminds me of another conference speech I once heard, by a very different Tory leader:

    “To borrow and to borrow and to borrow is not Macbeth with a heavy cold. It is Labour Party policy. But most people do not want to mortgage the future and leave their children to pick up the bill.”

    (Margaret Thatcher, UK Conservative Party Conference, 1985)

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  6. LC (162 comments) says:

    Why make SH1 a road of National Signifiance? More important road infrastructure is in the city areas where most of the work gets carried out. Peple moving from home/work and back again. Road transport from ports to work areas.

    I would also suggest that ports are significant infrastructure areas.

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  7. Anthony (789 comments) says:

    If the infrastructure is still there, like the chunnel for example, who cares if the project owner goes bust?

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  8. John Dalley (394 comments) says:

    “NZ does not have a debt problem”
    Well we will have if National gets into government. No fear guys i will dead long before the debts of this would be paid off so good luck to the younger generation when they have to pay fo John Keys big chrissy present.

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  9. big bruv (13,686 comments) says:

    John Dalley

    If we are stupid enough to vote for dear corrupt leader again then there will be no “younger generation” living in NZ (save for the usual bludging Labour party beneficiaries and voters) to pay for anything..

    I am really going to enjoy hearing you lot scream over the next nine years.

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  10. Michaels (1,318 comments) says:

    I like this man more and more.
    Of course that sour face Clark will say it’s not responsible, but finally, someone that will take this tired old country forward.

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  11. Paul (1,315 comments) says:

    Tax cuts aren’t inflationary. (we’re not borrowing for this, it’s the infrastructure)
    Neo-liberal model of Pharmac funding isn’t working (re Herceptin)
    Massive Government spending on Infrastructure

    National is taking the voter for a fool, and it seems they are more stupid than even I thought possible.

    What does National stand for these days.

    Oh yeah, here it is, remove MMP. that’s right all we need now to complete the model is to revert to the model that over represents white middle class males.

    Key “Want’s to give voters the choice”. Cool will he be giving me the choice. MMP isn’t corrupt it’s the politicians, and the funniest thing is that the two most distuptive MP’s in the last 10 years have both been from the right Brash and Peters. Yeah MMP’s all wrong.

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  12. Stuart Mackey (337 comments) says:

    # John Dalley (362) Add karma Subtract karma –5 Says:
    August 3rd, 2008 at 4:21 pm

    “NZ does not have a debt problem”
    Well we will have if National gets into government. No fear guys i will dead long before the debts of this would be paid off so good luck to the younger generation when they have to pay fo John Keys big chrissy present.

    You are aware, I presume, that all of New Zealand’s core infrastructure was largely financed by long term debt, from the roads to rail?

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  13. Owen McShane (1,226 comments) says:

    LOng term debt is the proper means of financing long term infrastructure because it lasts more than one generation.
    Why should the present generation pay for benefits which will accrue for 100 years.

    Worse the use of up front Development contributions, so favoured by this Labour government means that the present generation pays up front before the infrastructure is built. It’s pay before you use.
    Worse the developers (including families doing the most minor developments) have to pay before they sell – and if they don’t sell Council still holds the money.

    Just as the great depression was made even worse that restraints on free trade these levies are a retraint on internal trade – and just as damaging.

    They have to go!

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  14. Danyl Mclauchlan (1,066 comments) says:

    DPF – is there a copy of Key’s speech online somewhere?

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  15. PaulL (5,947 comments) says:

    I’ll start with comment on the policy, then comment on the comments.

    Borrowing for infrastructure can be a good idea, but not always. Muldoon was very fond of borrowing for infrastructure as he “thought big”, and we all spent a lot of time paying that off. The difference between good investment and bad investment is only the quality of the analysis of the returns. What I mean by that is that every pleb in government comes up with some crappy little study showing that their pet project will provide returns in excess of the investment. The reality is that they usually understate the costs (no govt projects ever finish on budget – few private sector ones do either), and overstate the benefits (usually courtesy of counting $5 for every NZer based on some apportionment of reduction in pollution or some other unmeasurable outcome).

    The easiest way to get ourselves out from under this poor analysis and the risks inherent in poor investment is to go with a public/private partnership. This isn’t only because the private sector is better at analysing risk and return (although they are), it is because if you contract the private sector to build and run an item of infrastructure, you limit the government cost to exactly what you contract. The private sector company builds it and takes the risk.

    Consider a road. The government would typically underwrite the consent process and provide the land, a private sector organisation would build it and either toll, or count cars and get paid by the government per car that uses it. If it takes longer to build, or costs more, the government pays nothing (other than consent process delays). If fewer cars use it than expected (people won’t pay the tolls if they are there, or there is some decline in transport) then the the government isn’t carrying debt for something that nobody is using. Sure, the private sector company may go bust. That’s all goodness for the government – usually if the company goes bust then the government has rights to take the asset back at a cut-price rate. If some investors in the UK, or Japan, or China or whereever they may have come from lose their money – well, that’s the nature of investment really. Risk v’s reward.

    Consider that same road built by the govt. Goes over budget – taxpayers pay. Fewer people use it than expected – taxpayers carry the debt without the corresponding benefits to the country.

    So long as National are serious about a) going private, and b) making sure that the deals they sign don’t have obscure bailout clauses that shift all the risk back to the government, then this is very good policy. If it is just think big by another name (“lets build fibre to the home for every NZer because we’re convinced it will have some sort of benefit one day”) then I think it is a bit more doubtful. I’d really like to see National modify the policy a little to say “25Mbps to every home” rather than “Fibre to the home”. The private sector can find a lot of ways to do that that are a halfway house to fibre to the home, but at much lower cost.

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  16. PaulL (5,947 comments) says:

    So, on to the comments on this thread.

    Freedom101: I’d much prefer that we cut some govt spending to invest. Get rid of WFF and spend it on infrastructure instead. That is investing in the future and will help our children just as much as giving their parents money today will

    GWW: what is at all relevant in your comment? Who cares what the interest rates are in Iceland? The fact that private sector companies have gone bankrupt in infrastructure investments is good news – if those projects had been publically funded the taxpayer would have been paying instead of fat cat foreign investors. What is your objection – let me guess: Labour good National bad.

    Dalley: depends how you count. I would argue that a country should probably be carrying 15% or so of debt long term. So they’d never be paid off. Not sure your comment has any usefulness at all.

    Paul: since when is Peters from the right? Peters’ policies focus on only one thing – Winston himself. How about I don’t label him left (despite him supporting Labour for how long now?), and you do me the favour of not labelling him right. And as for Brash – your opinion only. I would say that Helen Clark has done way more to lower the standards in NZ politics, but I guess it depends where you’re coming from. I’m not sure what you’d lay at Don’s door tho – didn’t see any mud slinging, he was quite principled in general.

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  17. Nomestradamus (3,216 comments) says:

    Danyl Mclauchlan:

    DPF – is there a copy of Key’s speech online somewhere?

    You could go to National’s website>News>Speeches – or just click here :)

    PaulL:

    Excellent contributions – thank you. My only observation would be that there’s no one public-private partnership model (I realise you weren’t suggesting that’s the case). As you observe, it’d really depend on how National structured and financed major infrastructure projects.

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  18. virtualmark (1,510 comments) says:

    I’m with PaulL.

    GWW: Wow. Iceland has high interest rates. And just how is Iceland’s economic situation comparable to New Zealand’s? Exactly how are their high interest rates somehow relevant to NZ?

    Paul: Where is National promising to get rid of MMP? What I heard is that they’re committed to having a referendum on MMP. Are you familiar with democracy? If more than 50% of eligible voters were to vote against MMP what do you think the Government of the day should do? Or are you just smugly convinced that your intellectual position is the last word on the matter and so there’s no need to bother the poor uninformed voter? What a patronising tosser.

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  19. Stuart Mackey (337 comments) says:

    “Owen McShane (303) Add karma Subtract karma +3 Says:
    August 3rd, 2008 at 5:37 pm

    LOng term debt is the proper means of financing long term infrastructure because it lasts more than one generation.
    Why should the present generation pay for benefits which will accrue for 100 years.
    snippage”

    Exactly. I do wonder if Cullen has actually looked at the history of this country in its early years, and those early governments who borrowed long term to build the nation and subsequent governments who did the same. Capacity of infrastructure is a constant thing that requires investment to provide for the future of the nation.

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  20. insider (1,028 comments) says:

    This looks nice in theory but has teh risk of politicians choosing what projects get built. Not sure that is the best outcome. We have been badly burned in the past and continue to be by lobbyists pushing pet projects that taxpayers get to fund.

    Look at the behaviour of the current energy minister. He is pushing a major transmission line into auckland that might never be fully utilised when a power station would provide most of the same benefit at half the cost. But it is a pet project so he is pushing it through.

    I just think there are big risks in this centralised planning approach that political rather than sensible economic decisions are made.

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  21. Lipper (2,207 comments) says:

    SH 1.

    State Highway 1.

    What State are we in?

    Surely it should be M1, or National Motorway 1, or National Highway 1

    Just a thought!

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  22. mavxp (479 comments) says:

    This is a positive speech and, other than the concerns noted above over how savvy National will need to be in deciding what projects are worth investing in, and how the contracts will be managed I think overall it is a necessary move forward.

    If you recall the late 80’s early 90’s – the country was in recession and flat broke to boot. We were just about bankrupt in 1991 when National inherited the books, and quickly had to take evasive measures to put the country right – “Ruthenasia” is what resulted. Consequently, with poor financial status, the government halted funding on infrastructure when it would have been the prime time to build – cheap labour and construction rates. Even today engineering companies in NZ have a big generation gap due to the early 1990’s when there was no work.

    Now we are full cycle again, with the current credit crunch and stagflation, but in an overall healthier economic position (dear God please let it be so). So we can afford to keep spending on infrastructure in the low economic growth times when costs will be low, so that when the economy picks up again, the infrastructure is there ready to be utilised. Not just that, but there will be personnel to continue to design and build beyond this current downturn.

    But please National – invest wisely!

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  23. llew (1,533 comments) says:

    or National Motorway 1, or National Highway 1

    Where would the authorisation statement go?

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  24. stayathomemum (140 comments) says:

    I’m really pleased to see a 20 year plan in there – something that has been really lacking in running the country. It has been operating on 3 year plans for the last decade, and decisions made with little forethought except the amount of votes gathered.

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  25. Owen McShane (1,226 comments) says:

    Mr Singer is famous for inventing the domestic sewing machine.

    He should be more famous for inventing hire purchase.
    He realised that the sewing machine would allow working class women to make their own clothes – but they could not afford to buy the sewing machine.

    So he invented hire purchase and they could buy the sewing machine and pay for it out of the cash surplus from making their own clothes and furnishings etc.

    So it is OK to borrow for a sewing machine because it increases productivity.
    But one should not burrow to buy a dress.

    The same applies to government burrowing.

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  26. PhilBest (5,120 comments) says:

    # John Dalley (363) Add karma Subtract karma –22 Says:
    August 3rd, 2008 at 4:21 pm

    “NZ does not have a debt problem”
    “Well we will have if National gets into government. No fear guys i will dead long before the debts of this would be paid off so good luck to the younger generation when they have to pay fo (sic) John Keys big Chrissy present.”

    And the younger generation having to pay for money used to buy votes, keep bludgers work-free, overpay fellow-travellers in the bureaucracy; all that stuff is somehow moral, but using the same money to build a road, somehow isn’t?

    Look, if we had had an ideology like the current government’s one running the country for the last 100 years, we’d still be riding horses through the bush and living in log cabins with smoky fires and spit-cooking and sweating from dawn to dusk just staying alive, and our life expectancy would be about half what it is now, in spite of the absence of fossil fuel exhaust fumes and industrial-chemical pollution………

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  27. Glenn (69 comments) says:

    Re the “borrowing for tax cuts” meme, here’s how I would frame it: “A government borrows for expenditure. Tax cuts are not “expenditure.” National comes from the position that your money is rightfully your own and we will do as much as it can to return it to you. That’s a party principle and first priority. Then we can talk about expenditure and how much we borrow for it.”

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  28. Patrick Starr (3,674 comments) says:

    Cast your mind back to the 2007 David Shand chaired Government Rates Inquiry into Local Government funding. A key recommendation in that report with respect to funding of infrastructure states:

    “There is scope for considerable reduction in or holding of rates by greater use of debt funding for long-life assets (which is an equitable way of funding such assets).”

    As recently as 5 days ago Nanaia Mahuta, put out a press release rejecting several key recommendations of the Rates Inquiry. Ironically borrowing for infrastructure was not amongst the recommendations rejected.
    It appears greater use of debt funding for long-life assets is accepted provided its not done by a National Govt

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  29. Owen McShane (1,226 comments) says:

    I actually heard Michael Cullen say that investing in high speed broadband has nothing to do with promoting productivity and only means that granny can download baby pictures quicker.

    And this clown is in cabinet?

    Modern society needs three great highway networks – the transport highways, the energy highways, and the communications highway.

    The impact of broadband on productivity is immense. Just ask anyone like me who lost broadband for two days during the storms.
    Nothing does more for cost effective research. It enables large scale telecommuting and of course will soon dramatically improve productivity in the health sector – animal and human health.

    This statement alone makes this government unfit to govern. Key should hit back hard on this one. But he should stop all references to fibre or any specific mode and just talk about high speed broadband.

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  30. libertyscott (359 comments) says:

    Now it’s good to have private sector investment, and National could be far bolder than this, but a 20 year plan? Sorry that just doesn’t wash – 20 years ago nobody would have planned for the internet, even 15 years ago they would have got it wrong with ideas like Compuserve and Apple’s e-world – both long gone. New Zealand is littered with state planning disasters and roads either built too early or not soon enough.

    On energy the answers are relatively simple, get the RMA out of the way and part privatise the three government owned electricity generators. If all were sold 49%, as a way of increasing capital, then the government wouldn’t need to spend a cent of taxpayers’ money. Energy is a very risky investment, it was the centrepiece of Think Big and Muldoon got it so wrong.

    On roads the Nats have sadly gone for quick fix pork-barrel nonsense of “roads of national significance”, does anyone seriously think SH1 north of Kaitaia or between Invercargill and Bluff is more important than SH20A to Auckland Airport, or SH29 from Waikato-Tauranga, or Dominion Road in Auckland or SH2 from Wellington to the Hutt? We were far better off using the policy the Nats LAST used which was for all road funding to be apolitical, based on cost/benefit analysis so money went for best bang for the buck which, amazingly, is mostly on relatively small projects fixing bends, intersections, adding lanes and replacing bridges, not big grand new highways.

    The Nats COULD have said it would review all planned railway spending that was not authorised by Land Transport NZ, and review all planned major road projects to ensure they all were worth proceeding with (at least benefit/cost ratios of 2:1), and redirect funds to those that are. However is it that the electorate is too dumb and just says “build road, bugger the cost, forget that it could have funded half a dozen cheaper better value improvements that aren’t sexy enough for politicians to open”.

    The future in infrastructure policy is not government direction, not taxpayers being forced to pay, it is with allowing the private sector to make up the difference. In the USA major highways have been leased off to private investors who have to maintain it, expand it and toll it, returning it to the public sector after lengthy periods in a set standard. In NZ the Nats could have innovatively offered this for Auckland Harbour Bridge and the Northern motorway approachs north and south of it, allowing an investor to build a new one or a tunnel in return – instead they are talking about taxpayers paying for it.

    The truth is that Labour is pouring money into roads, some of it unnecessary gold/green plating, but it is, and a check needs to be made as to whether that spending is all good value for money before promising to out do it. The real Labour transport waste is in rail, electrifying Auckland rail needs to be stopped before it is too late – the truth about this project should be outed and the money redirected to tax cuts instead, and a quantum leap in bus service quality.

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  31. OECD rank 22 kiwi (2,743 comments) says:

    Infrastructure plans are all nice and well but a smaller government is the most important issue to pursue. Government is rubbish at delivering results. Tax cuts are good because it lets people keep their own money. An added bonus is it initially gives the government less money to spend. Thanks to the Laffer curve the government is soon awash in cash again and needs to provide more tax cuts less it decides to blow the money on pointless projects that deliver nothing of value.

    If you want to put New Zealand on a growth track then you have to change the attitudes of New Zealanders who think it is up to government to provide them with their lifestyles.

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  32. stephen (4,063 comments) says:

    http://en.wikipedia.org/wiki/Laffer_curve#The_Neo-Laffer_curve

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