The National Infrastructure Plan

July 5th, 2011 at 9:00 am by David Farrar

For too long Governments have focused on operational spending, sometimes amounts as small as a few hundred thousand dollars, yet the billions of capital or infrastructure expenditure has received little scrutiny.

The National Infrastructure Plan is an interesting read, and only 68 pages long. The infrastructure spend is divided into five categories and six principles, with the results showing in the table below:

Green means this occurs effectively, orange means it occurs but could be better and red means it does not occur or is ineffective.

Water infrastructure stands out as the area that clearly needs the most attention.

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A selfless editorial

March 4th, 2011 at 12:00 pm by David Farrar

A very selfless editorial from the NZ Herald:

In the wake of the Christchurch earthquake a debate is developing about the merits of depriving other regions, notably Auckland, of development for the sake of Christchurch’s recovery.

In fact, there is no choice. Christchurch is one of the hubs of the national economy and the disruption of its normal activity will reduce economic activity nationwide. Its recovery is imperative and quite properly it will have first call on public investment for a good year or more.

The idea that boosting Auckland’s activity might enable the national economy to grow despite the earthquake is fanciful. Auckland’s infrastructure programmes are not gold discoveries; at best they are of incremental value to the economy.

They note:

In the wake of the earthquake, it seems clear the Auckland Council will have to forget about an inner-city rail loop if it wants this Government to fund it. That $2 billion proposition was already struggling to convince Transport Minister Steven Joyce that its business case was soundly based.

Members of the Auckland Council may be aggrieved that the centrepiece of their public transport plans may be sacrificed to the needs of Christchurch. …

If the Auckland Council dared to levy its own ratepayers for the bulk of the capital cost, its chances might be better still. But if the council continues to plead for national finance, it will find the Government more deaf than ever for a good while. The needs of Christchurch will take precedence over Auckland schemes, and properly so.

There will be two constraints on infrastructure spending outside Christchurch, which I agree must be the priority. One is fiscal – how much can one afford in any one year. But the more important constraint might be capacity – the construction industry is so big and can only handle so much work without leading to huge cost inflation. So some prioritisation in terms of timing may have to occur, and again Christchurch should win out.

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The 20 year plan

March 5th, 2010 at 1:52 pm by David Farrar

Over at NBR (sub needed), I review the Government’s 20 year infrastructure plan. A couple of extracts:

The most under-reported story of the week was the release of the country’s first ever 20 year infrastructure plan. The 141 page plan is our first ever stock-take of the national infrastructure yet it got a fraction of the headlines given to an MP musing on a blog about financial incentives to child abusers to get sterilised.

It is tempting to ridicule the notion of a 20 year plan, recalling that even the Soviet Union only had five year plans. But when it comes to capital spending on infrastructure, it does seem sensible to be looking beyond the next election. …

And on the roading side:

A user pays principle does raise the issue of whether or not the Government should have a fixed amount of petrol tax, or whether it should simply vary the petrol tax, so there is sufficient funding to pay for all roading projects that have a positive benefit to cost ratio. This could mean petrol costing $2 a litre, but it would mean safer and faster roads.

And some scepticism about the airports:

Rather boldy the Government declares that ports and airports operate within a competitive market, and the Government does not need to intervene with their investment decisions. I’d like to know how Auckland International Airport is in a competitive market. If Air New Zealand objects to increased landing charges, what are they going to do – land in Hamilton instead?

The full column is at NBR 24/7.

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Editorials 4 March 2010

March 4th, 2010 at 10:43 am by David Farrar

The Herald calls for PPPs to hasten infrastructure projects:

Finance Minister Bill English calls his National Infrastructure Plan an important step towards better infrastructure management. “Even a small improvement in this area could reap gains worth billions – making our infrastructure dollars go further and ensuring a better return for taxpayers,” he says.

The multibillion-dollar sums sprinkled throughout the plan leave no doubt about the size of the commitment. Equally, the OECD’s view that investment in infrastructure, especially transport and communications, boosts long-term economic output more than other kinds of physical investment emphasises this is a road that must be travelled.

The Government, like its predecessor, does not seem sold on fixing this by adopting the bold option of build, own, operate, transfer (Boot) schemes, even though they have been widely used in Australia. The plan is not specific, talking only of PPPs expanding “the scope for innovation in design, construction and management of new assets”.

But it also pays attention to their potential downsides. These include the “reduced flexibility due to the long-term nature of the contract, and the cost that arises from unanticipated contract variations”. The latter can, of course, be mitigated by precise framing, so the private partner is in no doubt about the risk to itself.

Far more emphasis should have been placed on the advantages of PPPs at a time when, despite the squeeze on its finances, the Government is eyeing spending $8 billion to $9.6 billion on designated roads of national significance over the next decade. These pluses include not only the reduced cost to the Crown but the economic value of private investment decisions if they have to carry a fair share of the risk.

Transmission Gully would be a fine candidate for a PPP.

The Dom Post looks at waterfront democracy:

Democracy can be a messy, expensive and lengthy business, as Wellington City Council is finding as it tries to push ahead with its plans for the waterfront. It also provides the best chance of the public ending up with with something it finds acceptable.

Wellington Mayor Kerry Prendergast’s sense of frustration at the appeals against Variation 11 is palpable. In broad terms, Waterfront Watch and the Historic Places Trust believe the variation, which allows buildings under certain heights to go ahead on part of the waterfront without any public consultation, is not stringent enough, and will mean the loss of transparency in the process. Queens Wharf Holdings, on the other hand, believes the proposed restrictions are too stringent. …

Ms Prendergast hopes a solution can be found through mediation. That, based on past experience, is unlikely. The dispute over the proper role for the waterfront has dragged on too long and the positions are too entrenched to hope with any sense of realism for a negotiated settlement. Instead, it seems inevitable that both sides will remain in their trenches, lobbing legal grenades at each other. That is not ideal, but it is the price paid for having a democracy where everyone can have their say and test their case.

It’s ridicolous that after almost two decades we still have no agreed upon plan implemented for the waterfront.

The Press looks at the proposed driving changes:

Despite clear evidence that younger drivers are over-represented in crash statistics, successive governments had for too long placed the controversial issue of the driving age in the too-hard basket.

Finally the present administration has decided to act by accepting the recommendation in the Safer Journeys discussion document to raise the age to 16. And, in another welcome move, the Government has announced that there will be a zero-alcohol limit for drivers under 20. …

And the ODT also looks at the driving changes:

Fifteen is too young to be out and about on the road in cars.

Once, of course, cars in this country were a relatively expensive commodity, owned only after years of hard work and saving.

It might be surmised that a degree of maturity and good sense would have been inculcated in the individual in that time.

There were no cheap Japanese imports, the banks operated under much stricter lending criteria, and there were no such entities as finance companies as might be recognised today; certainly none especially designed to propel young men and women, barely past puberty, into the ownership of fast cars.

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$500 million of infrastructure projects to be fast tracked

February 11th, 2009 at 11:37 am by David Farrar

John Key has given details of $500 million of infrastructure projects that will be fast tracked:

  • $69 million on five new schools
  • $30 million on school refurbishments and maintenance at 64 schools
  • $9 million for special schools facilities
  • $34 million to upgrade ICT infrastucture so schools are broadband capable.
  • $41 million on improvements in 11 schools
  • $6 million to establish a trades academy on Southern Cross Campus in Mangere
  • $28 million to help schools accelerate existing building projects that have stalled.
  • $43 million on acclerating five large state highway projects (Kopu Bridge Replacement, Matahorua Gorge Realignment, Hawkes Bay Expressway Southern Extension, Muldoon’s Rimutaka Corner Easing and Christchurch Southern Motorway
  • $100 million for smaller regional roading projects, with one third to be spent before 30 June.
  • $105 million on upgrades and renovations to 10,000 state houses – 18 a day for 18 months
  • $20 million on construction of 69 new state houses

Targeted infrastructure spending is a far better response than some of the massive pork laden stimulus packages we have seen overseas.

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Business NZ Conference Part IV

September 3rd, 2008 at 12:59 pm by David Farrar

The Infrastructure Forum had six questions:

  1. How will you stop the risk of power blackouts?
  2. Will you privatise power generation SOEs to get more competition and lower prices?
  3. How will you get broadband into more homes and businesses?
  4. What changes will you make to the RMA?
  5. Do you support more protection for businesses at risk from the ETS?
  6. Do you support carbon credit allocation based on carbon intensity

Gerry Brownlee

  1. Energy Policy released details improvements to both security and supply. Planning for far more growth than Labour. Major consent decisions to be made within nine months
  2. No SOE sales
  3. Ran out of time
  4. Referred to in 1
  5. Not a yes/no answer but said credit allocation should be decided by a select committee process and a National ETS will do that. Gave a great example of how concrete plants in Europe will pay far less for carbon credits so just force industry offshore.
  6. Ran out of time

David Parker

  1. Record investment in energy under Labour. National did not invest in the 1990s
  2. No
  3. Broadband essential. $500 million fund next five years. WIll not favour incumbent.
  4. Does not accept RMA is a barrier
  5. Missed
  6. Missed

Jeanette Fitzsimons

  1. One can have security by over-building capacity so it is wasted every year but the peak year. Not efficient. Better to have a standby plant. Says we had a 1 in 60 dry year. Third way is make smart adjustments to demand to reduce at times of shortage and that is what is missing.
  2. Will not sell SOEs. Rejects that it would lead to lower prices.
  3. Supported LLU. Broadband key to reducing transport. But not support large state investment.
  4. Most changes Gerry wants to RMA already done. Problem is implementation and no national guidelines.
  5. Trade-exposed businesses are already highly protected. Some businesses may end up with surplus credits without reducing emissions.
  6. No – an intensity basis will lead to continued emissions.

Rodney Hide

  1. Does not think we can rule out all the power generation methods the Greens do. Need to reduce cost of capital by lowering taxes.
  2. Yes would sell them. No sense in Govt owing competitive businesses. Ownign them locks up taxpayers money and limits companies ability to raise capital for investment it deems necessary.
  3. Broadband important but regulation stopping its rollout. Need a stronger economy to be able to afford it. Against National’s policy in this area. Investment is slowing down due to uncertainity.
  4. Private property rights need to be enhanced, The RMA damages these rights.

Peter Dunne

  1. Rejects ideology. Needs security of supply. Say question is an alarmist straw man. Currently power is an un-cordinated jigsaw (so why are we paying $90 million a year to the Electricity Commission then). Agrees we have had over supply in past – supports smaller local plants but big hydro plants.
  2. I think it was a no.
  3. RMA needs national policy guidelines. DO not throw away RMA – streamline it and keep core principles.
  4. Missed.
  5. Do not support further protection to at risk businesses as we do not know enough about impact.
  6. No does not support but is subject to how the Act works out. Reason they oppose bill is because so much is uncertain and is being rushed through purely for political gain. Wants it passed by 1 April 2009.
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Blog Bits

August 8th, 2008 at 2:47 pm by David Farrar

Four interesting blog pieces – all from “professional” journalists also. First off is Nick Stride, editor of The Independent:

Deputy Prime Minister Michael Cullen was on even shakier ground when he tried to paint National leader John Key’s debt raising and infrastructure investment strategy as a ruinous policy designed to hide borrowing to fund tax cuts.

If memory serves, it wasn’t so long ago Labour was attacking National for the speed with which it was pushing national debt levels down to 30% of GDP.

Now it’s on the attack over plans to lift that ratio from 20% to 22% a rise so insignificant it will barely register at the sovereign rating agencies.

The fact is, New Zealand ranks high among OECD countries in terms of its debt-to-GDP, and in the bottom half in terms of its infrastructure. It therefore makes perfect sense to allow the two to come a little closer together, to everybody’s benefit.

It’s true, as Vernon Small points out in his column on page 24, there’s no free lunch; the extra debt envisioned by National will have to be serviced, reducing the amount government can spend elsewhere.

But it’s not a zero-sum business in which a dollar spent on infrastructure is a dollar that must be taken from health or education. According to research conducted in 2004 by Macquarie Research Economics, every 1% rise in infrastructure spending can be expected to lift GDP 0.5%.

This is what the debate should be about – whether the return on the capital and the interest on borrowing is a good investment – will it lead to higher economic growth. Instead we have had a near Taliban like mentality – that any extra borrowing is madness and Muldoonism.

The Dom Post’s Vernon Small also blogs on this issue:

Yes, National’s plan to increase gross debt to 22% of GDP is conservative. But maintaining it two percentage points above Labour’s target does bend the party-political continuum.

Since when did centre-right parties run a looser fiscal regime than centre-left ones?

It is somewhat ironic. My non serious answer is since Labour started believing in tax cuts. My serious answer is that centre right parties see a difference between borrowing and expenditure on social spending, and borrowing for expenditure on capital works.

No, National cannot credibly say it is raising $750 million in borrowing only for infrastructure and not for tax cuts. Residual borrowing is the net impact of a complete revenue raising and spending programme, though there are good accountability reasons why politicians should explain how new programmes affect the mix.

Finance Minister Michael Cullen is also happy to let debt rise over the next few years, driven by a tax-cut programme. So it is a relativist, not absolutist, debate. They may as well argue they are borrowing to cover the impact on government revenue of the current recession.

Yes if National is borrowing for tax cuts, so are Labour. As I did a long winded post on last weekend, you have a current account and a capital account, and the cashflow funds both those things.

He isn’t a blogger but Keith Rankin writes in support of infrastructure spending:

Helen Clark and Michael Cullen are describing National’s proposal to borrow in order to fund infrastructure projects “incredible”, meaning foolhardy and irresponsible. (“Key unveils plan to borrow, PM dubs it ‘hilarious”‘ – NZ Herald August 4, 2008.) All Clark and Cullen are doing is showing how out of touch they are with economic reality.

Financial crises happen when lending slows down significantly in financial markets. The problem usually is a lack of credible borrowers. This is precisely the time that borrowers such as governments funding infrastructure need to step up to the plate.

Governments need to spend more and borrow more precisely when the private sector is spending less and borrowing less. This was the most important lesson of the Great Depression in the 1930s.

Ben Thomas writes on the so called secret agenda:

All of which is a roundabout way of saying the scandal that did erupt – the audio files of English and the Smiths, Lockwood and Nick – was outrageously overplayed by the media and National’s parliamentary opponents.

The story was as follows: an unknown person, who claimed later to be unaffiliated with any political party, attended the Friday night social event posing as a National Party member and engaged the three senior MPs in conversation around left-wing touchstones: state ownership of Kiwibank, nuclear power and Working for Families.

The conversations were recorded and played on the broadcaster as evidence suggesting that National had a “secret agenda.”

Fine. Except the recordings disclosed no such thing. They were evidence of absolutely nothing except a slightly looser verbal style than MPs would present in a formal media interview or Parliament. This is a story about language.

The Smith & Smith conversations especially were hyped up massively. They were quite unexceptional.

At it’s most basic, there is syntactic precision: there was little effort made in the media to differentiate a secret recording of a conversation (as in this case) from a recording of a secret conversation (which may have yielded something much more interesting).

A useful point.

English conceded he would eventually prefer to sell off Kiwibank “but not now.”

In fact absolutely nothing in English’s comments was inconsistent with National’s declared policy. Lockwood Smith was accused of revealing the hidden agenda when he said “Once we have gained the confidence of the people, we’ve got more chance of doing more things.”

He even said, “We may be able to do some things we believe we need to do, perhaps go through a discussion document process – you wouldn’t be able to do them straight off.”

In other words, National may have a secret plan to, er, consult with the community and gauge public opinion before implementing new policy.

Yes, how a public policy consultation process is proof of a secret agenda, I do now know.

The reality is the secret agenda meme is all about trying to associate a negative brand with a party. I will touch more on this next week, but is is the equivalent of the “Have you stopped beating your wife” question.

There is a very relevant example of a major political party in government pursuing a deeply unpopular policy in the face of public opposition, and refusing to abandon it despite repeatedly being told it is not what voters want. It is the Labour government’s push for state funding for political parties.

Labour has never campaigned in an election on this policy but it is a fond wish of the prime minister and her party.

It’s also a policy that is widely detested by the public, and has been soundly rejected every time its prospect has been floated either through official comments or strategic leaks.

Labour’s secret agenda for state funding – indeed. They don’t have the guts to make it a manifesto promise, because they know it is as popular as anthrax.

Finally back to Vernon Small again, who asks where the dividing line is between bloggers and journalists, with the catalyst being my accreditation as media at the National Party conference. It is an interesting issue (especially to me), but somewhat academic. This is the fourth or fifth National conference I have attended as media. I’ve also been in budget lockups as media, attended tax conferences, spoken on media panels at media conferences, and get invited to cover conferences and seminars on a very regular basis.

I’ve commented over on Vernon’s blog on a couple of issues he raises.

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Clark and Cullen on Debt

August 5th, 2008 at 4:24 pm by David Farrar

I have managed to obtain from a helpful staffer the full collection of quotes from Helen Clark and Michael Cullen on debt. Now remember they have been saying that going from gross debt being 20% of GDP to 22% of GDP is absolute lunacy and madness. So how does this measure up with their past statements. First Dr Cullen:

“The previous government had established a 30 percent of GDP target when the Fiscal Responsibility Act was passed in 1994, and had reduced it to 25 percent in 1999. When we came into office that year we made the judgement that the Crown finances and the state of the economy could not sustain that lower target, so we restored it to 30 percent of GDP.” – Michael Cullen 18 May, 2004, Speech to Chen Palmer & Partners Business and Government Seminar

So National had a target of 25%, and Labour increased it to 30%. yet now they are saying 22% is lunacy and madness.

And now Miss Clark:

All these quotes are from 1994, when debt was in excess of 50% of GDP!!”

“I am pleased that economic growth has produced enough tax revenue to declare a surplus and repay debt. But I am appalled at the rate at which debt repayment is occurring at the expense of families, and schools and other essential social and public services.” - Helen Clark (July 1994) Speech Auckland Labour Regional Conference

“The Government is putting an undue emphasis on debt repayment at the expense of our failing services and infrastructure in New Zealand,” - Helen Clark (June 1994) Opening address to the Massey University Winter Lecture Series.

“We agree that we should be aiming to ensure that the ratio of debt to GDP in New Zealand is not out of line with other smaller industrialised countries. But Labour does not accept that having the smallest debt to GDP ratio in the OECD is an important goal. Nor do we believe that reducing our debt quickly should take precedence over improving the living standard,” - Helen Clark (July 1994) Speech to Northern South Island Labour Regional Conference.

“At Budget time our net public debt was equivalent to 42 per cent of GDP – down from 48 per cent a year earlier… Given those figures, it is hard to believe that the international credit rating agencies with which the Government is so besotted can have any real concern at our current level of debt,” - Helen Clark (June 1994) Waikato Labour Regional Conference.

“The Government is obsessed with debt reduction over all other needs for spending,” - Helen Clark (July 1994) Speech to Wellington Labour Regional Conference.

So when gross debt was over 50% of GDP, Clark time and time again attacked reducing that level of debt, and specifically advocated investing money into infrastructure instead.

I trust we will hear no more hysteria from Helen or Michael on a gross debt setting of 22% of GDP!

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The House today

August 5th, 2008 at 2:40 pm by David Farrar

The Winston question was a fizzer – his so called dirt on National was all old stuff.

The questions on borrowing for infrastructure has been wonderful. Someone in National Research deserves a keg of beer for digging up quotes from Helen Clark in 1994 and 1999 advocating increased borrowing.

The 1994 quote was priceless as debt as a % of GDP was 56% then, and Clark explicitly said there should be more money on infrastructure and not to worry about the debt.

Key also revealed that the first thing Clark did when she became PM was lift the Govt’s target for debt as a % of GDP from 25% to 30%. Hilarious.

National will get beaten up later on for Bill’s tape recorded comments, but those quotes were priceless, and the look on her face as Key read them out – superb.

Anyone who has a copy of the actual full quotes should feel free to e-mail them to me!

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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 infrastructure 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 National 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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National’s Infrastructure Forum

August 3rd, 2008 at 9:44 am by David Farrar

The Infrastructure Forum has just started. I’m only half taking it in, as was a pretty late night out with the Young Nationals celebrating the All Blacks massive victory.

Got absolutely soaked to the bone getting home – it was thundering down, and taxis were scarce with a 30 minute delay if you phoned for one.

Anyway back to infrastructure. First up was Maurice Williamson on transport and he summed it up himself with a one liner – National will build more roads – lots of them! He gave some staggering figures on the massive increase in costs that some roading projects have incurred due to consent delays. He stressed this wasn’t about even getiing enough roads for future volume, but just getting us enough for our current needs.

Then Gerry Brownlee on energy. Gerry said that if we found Maui field today, it would be worth around $50 billion. Said that concern over carbon emissions doesn’t change the fact that replacements for current fuel sources are not extensively available, so demand will stay high. NZ second only to Canada in our mineral endowment.

Third up was Nick Smith on RMA reform.  Round up of how multiple business organisations, government advisory groups and surveys all rate this as the highest priority. Will be enacted within months not years of the election.

Questions were fairly as expected. A patsy on why broadband is a better infrastructure investment than trains. Some discussion on coal and carbon emissions and whether one can sequester the co2 from coal. Also focus on consenting for roads – the desirability of having one consent application for an entire motorway, rather than breaking it down into lots of small packages – each of which has its own process.

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