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Don Brash Speech: National Finance Spokesman


Don Brash Speech: National Finance Spokesman

The Road To A Better Future

Improving New Zealand's economic growth rate will be the most important priority of the next National Government. Why? Because the reality is that, unless we do increase the country's growth rate, we will not be able to sustain the kind of society that we all want for our children and grandchildren.

Stronger economic growth leads to better living standards. We need stronger growth to be able to continue to afford first-world healthcare and education; to be able to provide well-paid jobs and decent housing for our population; to be able to fund an appropriate level of armed forces; to be able to protect the environment; and even to compete effectively in international sporting events. Indeed we need stronger growth to be able to achieve most of the things that are important to a healthy society.

Regrettably, average living standards in New Zealand are now substantially lower than in most other OECD countries. New Zealand's growth in per capita GDP in the seventies and eighties was markedly slower than in the OECD meaning that we fell from being one of the richest countries in the OECD to ranking among the bottom third.

Thanks to the deregulation and other reforms of the late eighties and early nineties, per capita GDP growth accelerated markedly in the nineties, and indeed exceeded the growth in the OECD on average.

But despite faster growth recently, we still remain well down the OECD league table in terms of per capita GDP:

Over the last 30 years, the gap between living standards in New Zealand and those in Australia has become particularly marked. That gap in GDP per capita means the average Australian is better off than the average New Zealander to the tune of some $200 per week!

Unfortunately if that gap doesn't narrow - worse still if it gets bigger - New Zealand society as we have known it won't survive. The worry is that if we become poorer compared with other countries, an increasing number of brightest and best will decide to leave for the bright lights of Sydney, London and New York. And not return. Such an outcome would leave our society in danger of unwinding in a downward spiral towards third-world status. Already we have lost New Zealand citizens, net, in every single year since the late seventies, a cumulative loss of over 500,000 New Zealand citizens over the last 25 years!

So what does the future look like? The Government used to claim that it wanted New Zealand back into the top half of the OECD within 10 years. But that ain't going to happen! To get to the top half of the OECD in 20 years would require growth in per capita GDP of over 3% annually; to get there in 10 years would require about 4½% annually; what is now projected by the Treasury is about 2% - less than the rate achieved in the last 10 years, and less than half the rate needed to get to the top half of the OECD in 10 years.

Alas, the Government erects barriers to growth at every turn. As soon as Labour was elected it set about increasing tax rates on our most enterprising people. Since then Labour has damaged our chances of increasing New Zealand's sustainable growth rate with a whole series of anti-business measures including signing up to the Kyoto protocol before our key trading partners, and introducing the Employment Relations Act, the Local Government Act, the Resource Management Amendment Act, and the Health and Safety in Employment Amendment Act, to name just a few.

The impact of this Government's anti-growth, anti-business, agenda is reflected in a survey of 760 firms conducted last month by KPMG and Business NZ, which found that compliance costs had increased for an astonishing 98.2% of respondents! And it looks as though there's much more bad news to come, with additional taxes and levies looming and further anti-business labour legislation looking likely next year. Now, how does New Zealand's roading network relate to economic growth? Road transport is a major component of New Zealand's economy and in itself accounts directly for over 3% of GDP. But more importantly, and as I don't need to tell this audience, making sure that we have an efficient road transport system is vital to realising the potential for economic growth across all sectors.

The transport sector has grown rapidly in New Zealand over recent years - indeed the transport and storage sector has grown by an average 4½% annually over the last 15 years, compared to growth in total GDP averaging around 2½% annually. Reasons for the rapid growth in transport include the deregulation of the sector in the early eighties, which ended the monopoly of rail for many kinds of freight; and the increase in the ratio of exports to GDP over the years, with exports tending to be "road transport intensive" (with inputs like livestock and fertiliser, and outputs like livestock, milk, fruit, logs and timber). Greater centralisation of processing and distribution in these primary industries is also likely to have led to an increase in transport demand.

It is obvious that the development of New Zealand's roading system has not kept pace with the rapid growth of the transport sector, and inadequate roading has now become a significant obstacle to faster economic growth in some areas. In Auckland alone, the cost of congestion to our economy is estimated by the Government at $1 billion annually. But it is not only an Auckland problem. There are also major problems with the Auckland/Hamilton corridor and the Tauranga/Te Puke/Mt Maunganui area. There are many other bottlenecks all over the country, such as the Awatere Bridge in Marlborough.

Indeed a Government-sponsored study recently undertaken by Infometrics found that transport was the most serious constraint on business growth, with availability, reliability and cost of transport services all significant issues. The deterioration in Auckland's roading system is starkly illustrated by the experience of one of the surveyed distribution businesses, which was able to achieve four deliveries a day five years ago, compared to just 2½ round trips today.

Of course, better transport infrastructure alone won't fix New Zealand's growth problem. A whole raft of policy changes will be required. We need radical improvements in education to address the long tail of underachievers leaving our schooling system without even the rudiments of literacy or numeracy. We need to completely reform the welfare system to reduce the devastating impact of having nearly 400,000 people of working age dependent on a benefit. We need to do far more than the current Government's tinkering to reduce excessive compliance costs faced by small and large businesses. We need to change the tax system to encourage hard work, investment and risk taking. And we need to foster a culture that encourages enterprise. Nevertheless, addressing the issues in our transport infrastructure will make a hugely important contribution to increasing our growth rate.

Unfortunately, the current Government is failing to address New Zealand's roading inadequacies. Under the current programme of Transfund New Zealand, too many projects with high benefit/cost ratios are not due to even start before 2010!

There are two main obstacles to fixing our roading problems in a timely fashion.

First, the consents process is far too slow. Transit New Zealand has advised a Select Committee of Parliament that it can take up to seven years to get a motorway consent. Singapore, on the other hand, which has tougher environmental laws than New Zealand in some respects, can turn around consents in just seven days. There is currently a long list of key roading projects that have been bogged down in the consents process for years - the Albany-Puhoi motorway extension and the Wellington inner city bypass are just two prominent examples.

The RMA itself is a big part of the problem, and that became increasingly obvious during the late nineties. Unfortunately, the National Government's attempt to fix the problems by amending that legislation in 1999 was thwarted by the election. The latest amendment to the RMA, passed into law just a couple of months ago, totally failed to deal with the problem and the Land Transport Management Bill, which I will discuss in a moment, looks likely to worsen the situation. Fixing the many problems with the RMA (and undoing the new problems of the Land Transport Management Bill) will be a top priority for the next National Government.

Second, there seems to be a serious shortage of money to fund the roads we need. But unless I am missing something very important, this is utterly ridiculous and reflects the highly political nature of the decision-making process around roading investment. The public debate is about how much local bodies should contribute towards better roads, about huge increases in ARC rates, and about how much of the petrol tax is siphoned off to finance cycle-ways and coastal shipping so that the Government can do a deal with the Greens.

In the 1950s and 1960s, it is quite probable that the same political process resulted in some over-investment in roads, with evidence that some roads were built where the costs significantly exceeded the benefits, with resultant waste of resources. Now, Transfund makes funds available for projects only where they meet a benefit/cost ratio of 4:1. This is truly astonishing when one considers that any project with a ratio of higher than 1:1 would, on the face of it, provide net benefits to New Zealand. Even accepting that the calculation of these ratios is subject to a wide margin of error, it is still totally unclear to me why the Government has constrained Transfund to finance only projects meeting this very high hurdle rate of return.

It reminds me of the appalling under-investment in many parts of the telephone network before the corporatisation of the telephone services of the old Post Office, in the late 1980s. I well recall returning to live in New Zealand in 1971, buying a house in a long-developed suburb on the North Shore of Auckland, and being told I had to be content with a party line. Or trying to buy a loud-speaker phone for the business I was establishing at the same time, and being told that the Post Office did not supply loud-speaker phones and that it was illegal to attach anything not bought from the Post Office to the phone lines. Or my parents buying a house in another long-established North Shore suburb in the late 1970s only to find that the phone in the house had to be disconnected because there weren't enough circuits in the local telephone exchange and that anybody moving into the distri

A thorough overhaul of the whole basis for funding investment in roads is long overdue. Ratepayers may need to contribute to the cost of roads, but should not be expected to carry most of the load. It is the users of roads who should be expected to cover most of the cost of roads, through the petrol tax which they pay (already) and through other kinds of road user charges.

And while roading projects with very high benefit/cost ratios are not going ahead, with all the resultant congestion, delays and costs, hundreds of millions of dollars are being poured into projects such as urban rail systems in Auckland that are not supported by any rigorous economic analysis.

At the moment, rail provides about 2 million passenger trips a year in Auckland, or about 0.2% of the total of nearly 1 billion passenger trips. And that requires a subsidy of about $10 per passenger trip. It is hoped that, by spending a vast fortune of around $1.5 billion on upgrading the rail network and the trains that run on it, rail might eventually provide 25 million passenger trips a year, at an annual subsidy of $100 million - which equates to a subsidy of $4 per trip. Such expenditure is absolutely dopey! Meanwhile, the massive congestion problems on Auckland's roads will only get worse.

Another recent example of this Government's grossly flawed approach to transport is the partial renationalisation of rail. The full story of the privatisation of New Zealand's railway operations is yet to be told, but a study done by the Institute for the Study of Competition and Regulation concluded some years ago that that privatisation was of clear net national benefit. And now, at the cost of hundreds of millions dollars to the taxpayer, the Government is wading back in. Sadly, the result will almost certainly be a less efficient transport system and more taxpayer money down the drain.

And to top all this off, the Government's proposed amendments to the Land Transport Management Act will make the situation worse. In direct contrast to all of Labour's rhetoric about its commitment to increasing New Zealand's economic growth rate to get us back into the top half of the OECD, the Land Transport Management Bill, which is currently in Select Committee, removes the concept of economic efficiency as an objective of land transport policy in favour of environmental and social considerations!

Other worrying aspects of the Bill include:

* the introduction of additional layers of required consultation, on top of existing RMA requirements, adding further delays to the consent process; * the relaxation of the requirement for local authorities to competitively tender out road maintenance, meaning that road user money will be allocated less efficiently; and * increased Ministerial powers over road funding - without increased accountability - meaning that roading decisions will be even more subject to the political whims of the Government.

On the face of it, one slightly hopeful feature of the Bill is that it does contain provisions to enable tolls and public private partnerships. But unfortunately the rigid and onerous conditions attached before either can be used are likely to result in potential private investors facing risks that will simply stop almost all such projects going ahead.

There is little doubt that the passage of this Bill - due later this year - will make it harder to fix New Zealand's roading problems and thus further damage our growth prospects.

The next National Government will be absolutely committed to lifting our growth rate. Fixing our roading problems will therefore be a key focus.

A significant increase in Crown funding will no doubt be required over the next 10 years to finance economically sound roading improvements and a National Government will ensure that that funding is available. But in addition a National Government will be committed to de-politicising the decision-making process and exploring alternative methods to fund the upgrade and operation of the road transport system where appropriate.

Might that involve private investment in our roading network? Quite possibly. Private investment in major roads is now widespread in Australia, the United States, and many other parts of the world. It is hard to see why New Zealand should rule out private investment in roads when that seems perfectly acceptable in communist China.

Might we need to have tolls or other forms of road user charges? Of course, we already have road user charges - the tax on petrol and the road user charges applying to your industry are a long established part of the scene. The issue is one of balance - should more of the cost of the road system be borne by users and less by ratepayers? Should more of the money which is now raised by the tax on petrol be spent on the road network? What is the most efficient way of charging for the use of the road network? Should there be different charges for using the network at some times of the day?

The crucial need is to move the decision-making process out of the political process so that road users can express their preferences through what they are willing to pay for, not through lobbying their local councillor, regional councillor, or Member of Parliament.

Nobody wants to pay more for something than is strictly necessary, and nobody likes to pay for something which has had the appearance of being free in the past. But we are clearly paying a high price today for our allegedly "free" roads - a price measured in terms of hours lost, capital tied up unnecessarily, investment and jobs in new factories lost, huge increases in local body rates.

I have little doubt that most people, and certainly most businesses, would willingly pay a modest toll in order to eliminate the endless delays, the wasted fuel, and the wasted capital inherent in the present situation (large trucks and their cargoes tied up in traffic jams, doing only two trips a day where, without congestion, four would be feasible).

To sum up, National recognises the crucial importance of an efficient road transport sector to the growth of our economy, and therefore to the prosperity of all New Zealanders. We share your serious concerns about the current inadequate state of the road network and its effect on the economy. When we become Government, we will move rapidly to speed the consents process, ensure adequate public and private funding for all economically viable roads, and de-politicise the decision-making process.

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