Guest Post: Funding Infrastructure

A guest post by Gary Lindsay responding to the speech by Infrastructure Minister Chris Bishop:

Chris Bishop’s speech regarding infrastructure has been a long time coming.  It’s great that a government is finally serious about the massive infrastructure deficit that has been building since the major (necessary) cuts in 1984.  Correcting a 40 year infrastructure deficit is huge, and it’s going to take a generation of nation building to do it.  Our grandparents did it between the 1940s and 80s, and I am sure our generation is up to the task.  I have major concerns with Mr Bishop’s proposals, particularly around the funding models proposed. 

Roading and infrastructure are as close to natural monopolies as you can get, and realistically in New Zealand there will always be government involvement.  We are stuck with it whether we like it or not.  All we can do is to try and find ways to make that monopoly more transparent, and to push the costs onto those who use the infrastructure as much as possible.  The real question is what that involvement looks like.  

Mr Bishop has discussed the way infrastructure is funded, and that the underinvestment has been the result of councils and the Crown siphoning away infrastructure monies in favour of other priorities.  I don’t think anyone disagrees with that statement at all.  He also discusses user pays, which is also a good idea.  This isn’t a fault with the way the money is raised; it’s a fault with a lack of accountability with how it is spent.  I also noticed that public transport was not discussed as something that could be user pays.

I’ll start by agreeing with him that user pays is a great way to fund roading.  The people benefitting from the roads should be those who pay for them.  That should go for all government services, not just roading.  But that’s where I begin to disagree with Mr Bishop.  We already have a system that achieves user-pays for roads (or would, if previous governments hadn’t used the money for something else).  We have fuel excise for petrol vehicles, and it’s a big one, making up about 70c/litre (plus GST, plus a few other levies).  Diesel and battery powered vehicles have RUCs which are also pretty steep.  But the flip side of that is they are relatively easy to administer and police – the fuel excise is levied before the retailer or consumer sees it, with the taxman needing to deal with less than 10 entities to collect it.  The RUCs are a bit harder, although it’s hardly onerous to spend 10 minutes to buy some online every 10,000 km and really easy to prove compliance on the side of the road.  It’s the most realistic way for a user pays system to work when a large proportion of the diesel sold isn’t actually used for road transport.   Overall it’s a good system, it’s easy to administer, and it isn’t in your face.  That method of raising money isn’t actually broken.

You only need look across the Tasman at the infrastructure in states like South Australia, Western Australia, and Tasmania, to see jurisdictions where a mix of fuel excise and registration works.  None of those states have toll roads, and all of them have much better road networks than New Zealand does, with a similar way of funding roads.  The argument that New Zealand is a big country doesn’t fly – WA is almost 10 times larger than NZ, and SA is about 3.6x larger.  While their roads are generally long and straight, the distances are huge and they still have geotechnically challenging areas like New Zealand does.   Even Australia’s poorest state, Tasmania, has better roads than New Zealand, and Tas has challenging terrain.  We can also look to the past.  In 1984 New Zealand had very good roads for the time.  Those roads were funded using the fuel excise and registration fees, not private money.   It is misleading of Mr Bishop to say that the manner of raising funds has caused this problem.  It has not.  Funding roads the way we currently fund them works overseas and worked in New Zealand in the past.

What I don’t like is the proposal for congestion charging and for mileage charging monitored by the state.  Changing a system that’s not broken to some sort of billing arrangement per kilometre is not going to make the funding arrangement better.  If it’s really about incentives, we already have an effective disincentive to travel during peak times – congestion!  A driver sitting in traffic on his way to work in peak hour has to pay with his time, which isn’t cheap (at an hourly rate of $50 per hour an extra half hour already costs the driver and his passengers $25 each), and in addition there is extra fuel excise due to the efficiency of the car needing to use more fuel per kilometre.  Adding an additional fee that is payable to the state is just adding insult to injury – most people who can travel at a different time already do.  It will only serve to raise money for the state.  Put in economic terms, the demand for road use during peak hour is inelastic.  The funding system isn’t broken.

The idea of tolling new roads has some merit.  This has been used successfully in New Zealand, with the Tauranga and Auckland harbour bridges both being funded by a toll, where the proceeds went to paying off the loan to build each of the bridges.  It also worked well in states like Queensland, where the Gateway and Logan Motorways were constructed in the 80s and 90s, and rebuilt more recently, funded entirely by tolls.  Subsequent (Labor) governments moved the goal posts by selling both roads to Transurban who use them as a cash cow.  Transurban DID fund the upgrade of both roads and the second Gateway bridge so it’s not entirely one sided, but everyone was OK with the original arrangement where the debt for the motorways and bridges were paid for by tolls.

Less successful have been schemes where the private sector pays up front.  It’s actually really risky venture for the initial investors; the Clem Jones Tunnel (known as the Clem 7) in Brisbane went bust before it was completed so was completed by the state then sold to Transurban at a discounted price – the replacement cost is way less than what was paid by the eventual owner.  About the same time some high profile roads in Melbourne and Sydney also went bust following completion.  This has had real consequences in particular for the Lane Cove Tunnel on Sydney’s north shore; it went bust like the Clem7 and was completed by the state then sold with a similar arrangement to the Clem 7 tunnel, but the original builder took a lot of shortcuts and caused so full of defects that will affect its long term viability.  The state government sold the tunnel knowing this and now the new owner is suing the state government.  In all cases the geotechnical modelling and traffic modelling were massively deficient and different to reality.  The retail investors lost everything, and it will be a very long time until a public private road can attract investors the way they did in Australia ten years ago.  Mr Bishop is dreaming if he thinks he can get something off the ground without the government underwriting it.

I don’t think it’s really about a pricing signal to incentivise efficient use of roads.  The amount of surveillance required to get such a system working raises some very serious privacy concerns, not least of which is that the state does not need to know where my vehicle is at any given time.  It’s simply not their business, and changing the way we fund roading will make it their business.  What else will that data be used for?  Will that become part of a social credit system, where the state can cut your rights because you drive too much?  Using surveillance to achieve a result that is already achieved without surveillance is massive overreach.  It’s totally unnecessary.  We had a taste of totalitarian surveillance between 2020 and 2022 and I don’t think anyone wants to go back to that, except those who got a taste of power.  Maybe that includes Mr Bishop, who publicly stated the government should go door to door to pressure people to get vaccinated.  I think I’ll leave this paragraph here.

Water infrastructure in Wellington was used as another example.  Anyone who follows this forum knows that’s a case of the council misappropriating funds away from core services.  Changing the funding mix will not fix that – there would be nothing preventing the councils from misappropriating money raised from water meters instead.  The problem isn’t the funding, it’s councils wasting it.  Anecdotal experience in other places I am familiar with, such as Kapiti and Southeast Queensland, says that the result of installing water meters will be an increase in the cost of water to the consumer with no improvement in service.  If water meters are made mandatory home owners need to be able to opt out of the scheme and use tank water and a septic system if they wish, because then at least there would be a limit to how much councils and the state can shake down residents.

The discussion about councils installing infrastructure went inevitably to the ACT party’s proposal for councils to receive the GST from new build to pay for infrastructure.  Councils already charge hefty infrastructure levies to developers (which are passed on to their customers), which they waste.  What on earth makes Mr Bishop and the ACT party think that giving them more wouldn’t result in more of the same?  Perhaps a better option is for the infrastructure for large developments to be built by the developers themselves, which would create a way better incentive for them to not waste the money.  The infrastructure could remain in private ownership with some sort of strata management scheme, and the councils could stay out of it entirely.  Heck, we could abolish councils in favour of strata management for all new developments.  Smaller developers would probably have to continue with the current contributions scheme sadly.

One thing that you have to do when you criticise is offer an alternative.  I think I have established that the issue is the use of the funds by governments and councils, not the way the funds are raised.  Addressing the issues with councils is probably the easier of the two problems to solve.  The amalgamation of the local councils in the 1980s has not resulted in better governance as promised.  In 1984 we didn’t have the council spending too much money on bikeways and art installations while 2/3 of the city’s water was lost to leaks.  The more recent Auckland amalgamation has had an even worse result, that council has too much power and is too ineffective.  We need smaller councils, with part time councillors who need a real job (or married to one) to survive, and the councils need to be limited in their scope to core services – water, roads, rubbish, libraries, etc.  I’m talking making it suburb level; for those in Wellington it would mean suburbs like Tawa, Johnsonville, Karori, Kilbirnie, etc., would each get their own council.  With smaller councils the councillors and mayors will be closer to the people and easier to approach.  The people will be different too; the councillors will be parents at the local school, businessmen who have an evening to spare once a week, and so on, rather than someone who is prepared to give up their normal life.  The councillors would be much less likely to make poor decisions when the result of their actions may be being told all about it by locals when they are out and about in town or when dropping their kids at school.  Nothing reinforces public opinion to a politician like having to drive for an hour to get your groceries.  Furthermore, if a council does get too big for its boots, it is relatively trivial for residents to move to a neighbouring council and pay rates there instead, at least in the cities.  Competition always results in better outcomes and governance is no exception (you can see this at a national level with all of New Zealand’s brightest moving overseas).  While the 1980s Labour government did a lot of good things, amalgamating the councils and extending their remit away from core services wasn’t one of them. 

The government wasting the fuel excise and RUCs is much harder because it will always be a state monopoly.  I propose sequestering those funds in a transport fund that cannot be put into consolidated revenue and must be spent on maintaining and upgrading state highways.  Real transparency and consequences for mismanagement are needed to make it work, so I also propose making the fund a corporation instead of a government department, with a company constitution outlining what can and cannot be spent.  That would put the directors in breach of their fiduciary duties if the funds were misallocated, opening them up to prosecution.  The company’s constitution could also require a level of transparency at the same level or better than that required by companies listed on the NZX, with perhaps even asking the NZX to collect quarterly and annual reports.  Finally, the company’s constitution could be protected by an act of parliament requiring some super-majority or referendum to change.

Finally, tolling new “roads of national significance” could be achievable – but on a couple of conditions.  If the state is underwriting the project, the state collects the revenue and puts it toward the debt incurred for its construction.  When the debt is repaid the road becomes part of the state highway network and becomes free to use, with maintenance paid for by fuel excise.  Don’t sell the road to private interests who will use it as a cash cow, as has happened in the eastern states in Australia.  If the road is constructed without state funding by a private firm or joint venture then that road is theirs forever – but don’t agree to change the existing road network to force people to use the new toll road, and make sure there isn’t a clause to prevent competition from a future state or council road (or if there is make it for a relatively short period, like 5-10 years).  The arrangements for private ownership of such roads in NSW, Vic, and QLD are full of clauses that give the owners exclusive rights to charge for monopoly infrastructure for a century.  Don’t do that.  It’s not fair to the public, especially in growth areas where these projects are being built.  A privately run toll road needs to stand on its own two feet without government assistance or protection, or it shouldn’t get built.

Finally please don’t introduce mass surveillance under the guise of road funding.  The public are not stupid.  We can see what you are doing and don’t like it.  National’s foundation principles were “To promote good citizenship and self-reliance; to combat communism and socialism; to maintain freedom of contract; to encourage private enterprise; to safeguard individual rights and the privilege of ownership; to oppose interference by the State in business, and State control of industry”.  Mass surveillance is not consistent with them in any way, shape, or form. 

Comments (94)

Login to comment or vote

Add a Comment