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Hodgson: Contractors Federation speech

Thursday 04 August 2005 Speech Notes

Contractors Federation speech

Keynote address to the Contractors Federation Conference 2005, 9:30 am, Thursday 4 August, Crowne Plaza Hotel, Kilmore St Christchurch.

Good morning. I’m delighted I made it to the Conference this year. Last year I had to can out at the last minute and Rick van Barneveld gave my speech.

Things have changed a lot in the last twelve months. Last year I devoted a fair chunk of my speech to buildability, which is a jargon word that means different things to different people. In my speech I set out to unpack the word and try and examine what it meant. I was keen to try and identify what the various constraints were so that we had a chance to nail each of them.

Last year, for the first time, the National Land Transport Plan and the ten year state highway plan gave your industry a level of confidence about the future that you had not had before. The money was going to flow and you were going to have to gear up.

Buildability is just a catch cry for all the things that might stop you, and everyone else, from gearing up fast enough.

Things have changed a lot in the last 12 months. You have geared up. The progress has been remarkable and one of my messages today is to acknowledge that progress and to say thank you. Thank you.

Last year I was a little anxious you wouldn’t. This year I’m delighted you have. Yes, prices are moving up, especially some input prices. Yes, there are examples where no tender is let. But generally your supply has risen to meet our demand.

You will remember my colleagues Jim Anderton, Steve Maharey, Paul Swain and Judith Tizard led a forum with you on labour and skills in September.

Out of it came a joint action plan with the sector. Good and substantial progress is being made on a number of fronts:

- There has been a large increase in the number of people employed in the sector

- You are working on improving employment terms and conditions as a way to attract and retain people

- The Operate Safe scheme is going well thanks to your commitment to health and safety

- On immigration, there is priority recognition for professional, technical and operational construction workers for work permit and work to residence purposes, and

- You are involved with immigration to promote New Zealand to overseas workers.

Another simple example is this. You said to us that a 17 year old had to be allowed to drive a slow heavy vehicle off road. The rule had been that you need an HT license before you could drive heavy equipment and of course 17 year olds are not allowed an HT. By 18, you said, the young person will have cleared off to some other industry.

That rule is now nearly through.

So supply has generally risen to meet demand, and the anxiety over buildability has subsided a little.

But now we have a new challenge.

Demand just went up a big notch. In the year just beginning the National Land Transport Programme will spend $1.7 billion. That is over 80 per cent more than when we took office and it is more than 16 per cent more than this time last year. Sixteen per cent is a very chunky increase in demand.

Last year the 10-year forecast was $18.7 billion. It was wrong. This year the figure was $21 billion. Demand is heading north.

You have seen what has happened. The Government keeps adding money to the total. More money for Auckland, for Wellington, yesterday for Bay of Plenty, in the budget for all New Zealand, from a one off tax gain for all New Zealand.

So the $21 billion figure is also wrong. Which is why, for the first time, the 10-year forecast has to be reannounced this year. In fact it is being reannounced today by the Chair of Land Transport New Zealand and it will top $22.3 billion when you include the extra $150 million for the Bay of Plenty announced yesterday.

Here’s a graph. The blue bars are National and the red bars are Labour. You can see from the graph that we are intending to be back in Government. We have a lot of work to do, in transport and in many other areas.

Take a close look. These are very substantial increases. By next year, they will have doubled since we came to office. But these figures do not take inflation into account and they do not take economic growth into account. The only way to do that is to look at land transport spending as a percentage of GDP. This next graph does just that.

Study this one too. It tells its own story. We are in the middle of a step change. From a little below 1 per cent to a little above 1.5 per cent. We are currently ramping up through 1.3 per cent.

It’s easy to get a graph like this to head upwards. Just have a recession. The GDP goes down which makes the percentage go up. But that is not the case in New Zealand. Our economy is one of the strongest performers in the western world. We have the second lowest unemployment rate in the western world. You know. You are trying to hire in a tight labour market.

So for the graph to go up under those conditions requires chunky increases – the sort of increases you saw on the first graph.

All of this has escaped the notice of the other person who is in for the job of Prime Minister. You would think he could do his arithmetic. But no. He recently lamented that we would need to spend at the level of the OECD average. What is that average? It is 1.3 per cent. This year we are at the average. Next year above the average. The year after, well above.

Unfortunately your chief executive Richard made the mistake of thinking Dr Brash could get his arithmetic right. So a couple of weeks ago he repeated Dr Brash’s remarks saying “It’s now below the OECD average of around 1.3 per cent a year”. I feel a bit sorry for Richard because he was in my hometown of Dunedin at the time and I of course read it.

The truth is that it is now at the OECD average for the first time since I don’t know when. And it’s moving higher.

But wait there’s more. There has been a debate about whether the Government should divert all revenue from excise and road user charges out of the consolidated fund and into land transport funding. Our opponents have said they will, though it will take six years, and we are reminding folk we already have. If elected, National will divert $100 then $200 then $300 million in the next term totalling $600 million. But the additional funding diversion over the next three years from the Auckland package, the Wellington packages, the Bay of Plenty package, the budget 2005 package and the June half billion package totals $1.235 billion over the same period. A Labour-led government would spend more than double on transport from the Crown Account than a National led one.

And there is one other statistic I’d like to give you and it concerns Auckland and major projects. All governments build new passing lanes and straighten corners. Such minor works, including minor safety works, are important and ongoing. But it is the major works which test the adequacy of funding.

The day we came into office the major works underway or recently completed had a value totalling $130 million. Today using exactly the same criterion the figure is a little over $1300 million. $130 million versus $1300 million. A ten fold increase. It also shows clearly just which Government is responsible for Auckland’s infrastructure deficit and just which Government is fixing it. From your perspective that is a huge gear up and that’s why I have come to say thank you.

I’ve gone on about money a bit and I’m going to stop doing that and say something else. But the reason I have is two-fold. The first is that I am wanting to answer our critics: Dr Brash, the Northern EMA, New Zealand First and, I am sure unwittingly, Michael.

The second is that your industry needs to see how the graphs are going up. That is why the NLTP is being released again today for the second time in six weeks. The demand for your services is growing very quickly and you need to know so that you can supply. Otherwise it will be back to the buildability debate.

Enough on money. Let’s go to planning.

I spoke just before of Auckland’s land transport infrastructure deficit and how it arose in the nineties. A lack of cash was the main reason, but it was not the only one. What is more it is a deficit not limited to Auckland. It can be found all over the country, including hot spots in the South Island such as Nelson, Queenstown and here in Christchurch.

So what are the other components that made up that mess and how are we addressing them? Planning is an obvious place to start.

In the 1990s transport projects couldn’t get consents. The consenting process was a mess, but National made a crucial mistake in diagnosing the cause of that mess. They thought the problem was the legislation, the Resource Management Act. So they spent three years undertaking reform which they never completed and much of which we abandoned.

The problem lay elsewhere, in the administration of the Environment Court. They had no case management system. They just chugged through their queue of cases while the list just kept growing out in front of them. By the time we came to office the waiting time was 33 months. So we appointed good management expertise, appointed more Judges and alternate Judges and got rid of the backlog. These days the waiting time is not 33 months but 6 months and unless both parties agree the hearing is started on time. The time honoured legal practice of using delay to advantage has been stopped.

Yes, we did make some changes to the RMA too, to gain a bit more streamlining. They went through Parliament yesterday. But the main gains were in the Courts.

Another reason that the infrastructure deficit emerged in the nineties, especially the late nineties, is that National did not believe in a modern public transport system. The first clue on that score came with the privatisation of the country’s rail tracks, an unusually stupid move. Next they let existing infrastructure run down, then they failed to invest in new public transport services. So public transport’s share of land transport’s trips fell.

The North Shore busway, for example, was conceived years ago. It was then starved of funding even for design, let alone construction. The reason all this matters is that just a slight increase in public transport extends the useful life of existing roads a lot and conversely if people give up on buses and trains the roads jam up very quickly.

Funding for public transport in New Zealand this year, counting everything, is a quarter of a billion dollars. A busway here, double tracking there. Priority lanes, patronage funding, and soon I hope integrated ticketing. Public transport is making a comeback in our main cities and even in provincial cities such as Whangarei or Rotorua. In Christchurch, some folk have put passenger rail services back on the agenda and the bus services have been upgraded significantly.

Another reason is that National refused to use debt to bring projects forward. By contrast we think that’s a good idea. We passed law saying that tolling of new roads could occur if there was an alternative free route and if there was a high level of community support. We found that support for the Orewa to Puhoi motorway and for the Harbour Link project in Tauranga that I announced yesterday.

Under National the option for debt funding or for public private partnerships simply did not exist. Under this government, it does.

So those are the reasons for the infrastructure deficit of the nineties. Not enough money. Misdiagnosis of the planning delays. Failure to acknowledge the role of public transport. Lack of vision when it came to debt funding and tolling.

Two weeks ago I was at Chin Hill on the summit of Alpurt. The engineering and design going into that project is extraordinary. The topography presents amazing challenges. Back at the site office I came across a great sight. It was a group of 80 -100 people from many different companies, and from road designers to ecologists, working in the same room. That’s the way big projects are done these days and it is a credit to you and to Transit that it is.

The project involves shifting around 3.5 million cubic metres of earth. But guess what, there aren't enough earthmoving plant operators. Or there weren't until Infra Train, Goughs Institute of Training and the Northern Gateway Alliance got together. The result is that there are now 10 people with new careers as plant operators. I am told another intake of trainees is being looked at for the Spring.

There is no doubt we need to invest more in quality training. We also need to invest more in plant and equipment. That is what the tax changes announced in this year's budget are designed to promote.

The tax package is a sensible one, albeit less headline grabbing than our opponents’ populism. Company tax is a case in point. We resisted our opponents’ challenge to lower the headline rate from 33 cents to 30 cents, on the basis that much of that reduction would simply be remitted overseas by non-New Zealand companies.

Instead we reduced business taxation by changing fringe benefit taxation, by significantly accelerating depreciation regimes, by installing an attractive regime for venture capital, and much besides. This package will cost on average $350 million per year. It is deliberately directed towards New Zealand companies, including start-up or early stage companies which are not yet in profit and therefore not yet paying company tax at all.

I’ll wrap up. I’ve covered funding, planning, public transport, industry training and I’ve had a crack at our opponents on the way through. There is much I haven’t covered and if you wish I’ll hang around for questions and comments.

But I have one more political point to make. It is that you can only spend money once. As we approach the election please keep that thought to the forefront. If it’s going back in tax cuts then it isn’t going into land transport. If it is to be borrowed in big quantities then it will need to be paid back in the future, and serviced in the meantime with interest rates that are higher than they would otherwise be.

We invest in our future, in infrastructure, health and education, or we have tax cuts. It is one or the other.

Have a great conference.


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