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Cullen: Council of the Automobile Association

Hon Dr Michael Cullen
Deputy Prime Minister, Attorney-General, Minister of Finance, Minister for Tertiary Education, Leader of the House

30 June 2006 Speech Notes

Embargoed until: Friday 30 June 2006 at 9.00am

Address to the National Council of the NZ Automobile Association

Ernst & Young Boardroom, Level 24, Majestic Tower, Willis St, Wellington

Any glance through this year’s Budget, or indeed any of the budgets in the last six years, would reveal that transport is a very significant issue for New Zealand. That is indicative of two things:

First, it is a symptom of New Zealand’s impressive rate of growth, both in terms of population and in terms of the size and diversity of our economy. The pressure on our transport system arises because we want to move more people and more goods more frequently; and we want to do that safely and efficiently.

Second, it is a symptom of a decade of below par investment during the 1990s, and, in our largest city in particular, a symptom of a failure to coordinate all of the important elements in a transport strategy across a number of local authorities and central agencies. We have been playing a long game of catch up, and at the same time have been coping with ongoing demand growth.

I believe in the last six years we have made very significant progress across the portfolio:

- Annual land transport spending increased by 134 percent between 1999 and 2006; and $13.4 billion will be spent on land transport over the next five years;

- Of that, annual spending on state highway improvements has increased from $248 million in 1998/99 to an estimated $750 million in 2006/07;

- Annual spending on public transport has increased over 700 percent since 1999, from $43 million to an estimated $360 million in the next financial year;

- Public transport patronage has increased in our three major cities over that period, with a 43 percent increase in passenger boardings in Auckland alone;

- And since 1999 the road toll has dropped by around 30 percent. That means the human cost of our transport system has gone down, and that frees up the resources in accident and emergency care for other patients.

It is in the nature of the transport system that expectations tend to run ahead of delivery. After all, it is a part of our infrastructure that most New Zealanders use every day, and, for some of us, almost every trip brings us face to face with areas in need of improvement. Of course, these individual perceptions of what is wrong with our transport system do not always accord with a broader cost-benefit analysis.

When we add to this a perennial confusion in the public mind over the respective roles of central and local government in transport funding, and ambivalent views on what role the private sector can play, we have a set of circumstances in which it is difficult to maintain a focus on what is truly important.

That said, I believe we are making progress, and the AA as an organisation has frequently provided a calm and considered voice to what can be a heated debate.

We need to continue to advance on two fronts: funding and coordination. One without the other is a recipe for confusion and waste.

Hence, in the 2006 Budget the government is committing an additional $1.3 billion over 5 years to land transport. Of this, $862 million is to restore the level of activity that was forecast in the August 2005 National Land Transport Program.

A further $425 million is to advance a number of State Highway projects that were previously planned for the second five years of the 10 year State Highway Forecast, but that can now be brought forward. Also included are a small number of new projects of national importance, such as further investigation of the Transmission Gully route.

As an aside, there are two common misconceptions about the government’s capacity to fund land transport. The first is that the government is withholding some of the revenues from petrol tax and road user charges to fund other expenditure. If we look at the figures, we can see that between 2006 and 2010 the government will spend $300 million more on Land Transport than it receives in petrol tax and road user charges.

In other words there will be no net contribution from road users to the Crown account, and in fact taxpayers will be subsidising transport funding by a significant amount.

The second common misconception is that the government receives additional GST due to increasing petrol prices, and that this ought to mean more money available for roading projects. In fact, there is not a GST windfall for the government from rising petrol prices. People reduce the quantity of petrol they buy or the amount they spend on other items. This means that, although the government may collect more GST on petrol, it will collect less on other items, so that the revenue effect for the government is neutral on GST.

Some people have suggested specifically tagging the GST collected on petrol to the funding of land transport. This would be undesirable as it would restrict the flexibility of the government to allocate funding across all its spending priorities.

GST is collected on petrol as a percentage of the retail price. As retail prices are highly variable, committing the GST collected on petrol to land transport would be problematic. These GST revenues fluctuate with petrol prices and would make forecasting and planning very difficult.

In addition to a more stable long term funding plan, the government has put a lot of effort into improving confidence in our planning processes, including changes to improve confidence in land transport planning. These are:

- The development of a five year plan for State Highways;

- A commitment to ensure funding is sufficient to deliver the five year state highway plan; and

- A guaranteed level of revenue for the rest of the National Land Transport Programme so that Land Transport NZ will not have the difficulty of managing its programme in the face of changing revenue projections.

Inevitably, and somewhat irritatingly for the rest of the country, the testing ground for all transport strategies is the Auckland region. If it doesn’t work for Auckland, it doesn’t work for New Zealand.

In the Auckland transport package "Investing for Growth", released in March 2004, the government has reformed land transport planning and delivery in Auckland.

That includes a commitment of additional $1.62 billion over 10 years. This funding is now starting to flow through to projects on the ground, for example the Western line double tracking, the Western Ring Route, and the North Shore busway.

We expect to see the payoff to this reform this year and over the next three years. The Auckland Regional Transport Authority (ARTA) is expected to release its Auckland Transport Plan in July 2006, and for the first time we should get an integrated and prioritised plan of projects in Auckland covering all modes: that is, state highways, local roads, rail network, passenger transport and travel demand management.

It is important that this advance is not obscured by the kind of misleading media comment we have seen lately about a funding "shortfall" in Auckland. This was prompted by the release of Auckland Regional Council's Long Term Community Plan.

There is an important role for community wish lists in terms of transport, but there is also a danger that they will be transformed into some kind of bottom line, with the assistance of media parochialism. When funding inevitably fails to fulfil these wish lists, the result is often described as a ‘shortfall’, and seen as a kind of national disgrace.

To get some perspective on the issue, it is worth noting that a joint Auckland-Wellington working group has calculated that funding available for Auckland transport over the next 10 years, from central government and the Auckland region, totals $12 billion. This is already significantly above estimates made at the time of the Auckland transport package in 2004.

Auckland's desired wish list of projects is currently an additional $4.4 billion, split roughly evenly between local roading and rail projects. As I said, it is absolutely normal that such a wish list exists. Indeed, if it didn't it would probably indicate that we are funding a lot of low value projects. However, there is no justification to elevate the gap into a ‘shortfall’.

The fact is that central Government is contributing $8 billion of the $12 billion funding available, and that we are now in the process of developing with Auckland a shared long term vision for Auckland transport.

Contrary to media reports, the government has not ruled out electrification of the rail network, nor further investment in rail. On the contrary the government is investing $600 million in rail capital works over the next three years, and we have undertaken to consider the case for electrification when it is ready. Quite understandably, we want to see that it stacks up before we commit funding.

In addition, we are considering various ways that Auckland might raise further funding for transport if the region decides it wants to do more. Road pricing is one such option, and a regional petrol tax is another. We are also looking at the merits of allowing regional councils to charge development levies, which the current law precludes, and there may be other potential revenue sources.

The bottom line is that the government is actively engaged in addressing Auckland’s transport needs, and that means more than just making additional funding available. We are convinced of the need to look simultaneously across all modes of transport, including state highways, local roading, rail, and buses, and to look at options for travel demand management.

The same goes for the transport needs of other cities and regions. There is a common good to be achieved, and that means both involving all stakeholders in the discussion, but also leadership from both government and peak bodies in rising above narrowly defined sets of interests and finding long term sustainable solutions.

That notion is what lies behind the Land Management Transport Act 2003, which was introduced and passed by the Labour-led government. The Act outlines a number of consultation principles designed to ensure that stakeholders have a chance to input into the National Land Transport Programme. The government also consults on major strategies before they are finalised.

The AA has been important contributor to debates over the last few years (for example, the Allen report). It was also encouraging to see the AA’s enthusiastic response to Budget 2006.

I hope that kind of fair-minded advocacy will continue. One step forward might be to get our respective work programmes more aligned. I understand that the Ministry of Transport is currently seeking to develop a more coordinated approach to transport research, and are consulting on how to do this at the moment.

I also understand that the Ministry of Transport are about to initiate a "pre-policy" engagement with stakeholders to inform the policy proposals they will be bringing to government on completing the implementation of the government's Road Safety to 2010 strategy.

We look forward to seeing the AA continuing to engage with such consultation processes.

Thank you.


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