John Key MP National Party Leader

14 August 2008

Going for Growth

Speech to the NZ Council for Infrastructure Development Conference

Eden Park, Auckland

I'd like to thank the council for this opportunity to address you today.

Let me start by acknowledging the important work done by the New Zealand Council for Infrastructure Development Your advocacy, research, and collective voice play an important role in promoting world-class infrastructure development in New Zealand.

The National Party supports you in these efforts. We agree that quality infrastructure is vital to lifting national productivity, improving public services, and generating long-term economic growth. And we support your goal of drawing the public and private sector together in pursuit of better infrastructure for New Zealand.

Today, I'm going to talk a little about the role infrastructure will play in National's economic plan. I'm also going to touch on aspects of our energy policy which we are releasing today.

National's Infrastructure Policy

Fundamental to all of these policies is my belief that New Zealand is failing to deliver on its economic potential.

I simply don't accept that the bottom third of the OECD for average incomes is where our country belongs. I don't accept that we have to put up with losing 80,000 of our people every year to other parts of the world. And I'm horrified that the gap between our wages and those in Australia is now wider than it has been in our history - at more than 35%.

I'm confident, however, that National can turn these things around and improve New Zealand's economic performance. We have a detailed plan for achieving that. An important aspect of our plan is building the infrastructure New Zealand needs to grow.

I don't need to tell you how vital good infrastructure is to a well-running economy.

And I don't need to tell you that in the past few years New Zealand has shown all the symptoms of a severe infrastructure deficit - traffic jams, slow internet connections, inadequate public transport networks, and concerns about electricity supply.

These daily annoyances have a big-picture effect. They constrain productivity growth and they put huge pressure on inflation. That is a recipe for low growth and high interest rates.

So there is no question that building better infrastructure is essential to fuelling higher levels of non-inflationary economic growth for years to come. The question is how New Zealand achieves that step up in development and investment.

Two weeks ago, I announced National's policy for achieving this. It's comprehensive, it's bold, and Labour is utterly opposed to it. We are proud of it and I want to go over it for you today.

First of all, National will appoint a Minister of Infrastructure to reshape, co-ordinate, and then oversee the Government's infrastructure objectives. And before you worry about increased bureaucracy, this Minister will have a co-ordinating role working with the other Ministers in infrastructure portfolios. We remain very serious about not adding to the bureaucracy.

Secondly, we will spell out these objectives in a National Infrastructure Plan.

This 20-year plan will be developed in conjunction with local government. It will set a clear direction for vital national infrastructure investment, including top priority projects. It will be a plan that takes into account New Zealand's needs in a rapidly changing world. Changes like the growing price of oil and the need for public transport and roading networks that reflect that.

We have already announced one important component of our National Infrastructure Plan - that is our intention to invest up to $1.5 billion in Crown capital in an ultra-fast broadband network connecting 75% of New Zealanders.

This fibre-to-the-home network will be open access to allow for competition in telecommunication services. It will not line the pockets of incumbents seeking windfall gains. It will avoid duplication. It will promote affordable services for consumers and it will see the Government doing all it can to capture and promote the innovation and expertise of the private sector.

I believe that this broadband investment will be growth-enhancing, and that it will promote productivity and entrepreneurship.

Our National Infrastructure Plan will also include a new category of state highway. We will call these Roads of National Significance.

These Roads of National Significance will be singled out as essential roads that require priority treatment. They will include, for example, State Highway 1, the essential backbone of New Zealand's roading network.

Over the next few weeks, in the lead-up to the general election, National will detail other critical projects that will form part of our proposed National Infrastructure Plan.

Our plan will be underpinned by a new type of Priority Consenting.

National believes there are some infrastructure projects that are of such critical importance to the economy that they deserve priority treatment.

Our new Priority Consenting process will streamline consents for major national infrastructure. These will not go through the local council but instead will be called in and determined nationally.

Priority Consenting will still allow for proper environmental assessment and will enable communities to have their say. The law will require a decision on these Priority Consents within nine months.

In order to finance our increased infrastructure commitment, National will step up the levels of Crown capital investment.

Because right now New Zealand doesn't have a debt problem, it has a growth problem. So National's economic plan is focused on fuelling economic growth, not keeping within an overly restrictive debt target.

National is prepared to increase the Crown's current infrastructure investment by up to an extra $500 million a year above levels projected by Labour. This is in addition to the broadband investment commitments of $1.5 billion over six years that I've previously outlined.

This will result in National investing close to $5 billion of additional capital investment over the next six years to fund infrastructure over and above that foreshadowed by Labour.

This means that, at the most, National will be running a gross debt-to-GDP ratio around two percentage points higher than Labour is planning. So you can see that National will be achieving this step up in investment while remaining within conservative debt levels.

I believe this will be an investment that delivers considerable returns to New Zealanders for generations to come. That return will come in the form of enhanced services and enhanced capacity for our economy to grow and compete with the rest of the world.

In addition to our commitment to stepping-up Crown investment, National will take steps to ensure further infrastructure investment by the private sector.

We will pass laws to introduce a new range of financing techniques for national infrastructure projects.

As you know, governments raising capital from the private sector and working with the private sector to build and maintain public infrastructure is commonplace throughout the developed world. National will bring New Zealand into line with these international developments.

First, we will introduce infrastructure bonds.

Last year, the Labour Government introduced what it described as "infrastructure bonds". The reality is that these bonds were no different from bog-standard government bonds. There were no infrastructure risks linked to them. National will introduce real infrastructure bonds, with funding tagged to particular infrastructure.

Secondly, we will make greater use of public-private partnerships (PPPs).

National will dispense with Labour's blind ideology which has locked the private sector out of public infrastructure development and operation for so long. We will work with the best talent we can find to build and maintain infrastructure for Kiwis, and get it done quickly and efficiently.

We view PPP's as a vital tool for ensuring the government gets value for its infrastructure investment, realising that value is about shifting the government's sole focus on the upfront investment to a wider look at the whole-of-asset-life benefits, costs and risks. It requires a consideration of a fuller range of options, including design, funding, operating, maintaining, and modifying infrastructure assets.

As you know, PPP's allow the government to spread payments for major projects over their useful life. Payment is made only when services are delivered. Risks are shared between the private sector and government. And private sector management and expertise is also bought into play.

PPP's won't be appropriate for all assets, but by taking part in them, government can learn long-term management techniques to apply to fully publicly funded infrastructure.

In summary, National believes that government can work with the private sector to enhance the value and management of our public infrastructure investments.

Furthermore, we think these new financing and asset management techniques will open up infrastructure to a wide range of financial investors. This will include Kiwi mums and dads through their super funds and Kiwisaver accounts. It will also include Crown financial institutions, such as the NZ Super Fund and ACC, which, at their own discretion, will have the option of investing in quality long-term assets while at the same time investing in our futures.

Ladies and Gentlemen, National's infrastructure plan is based on our absolute commitment to do what it takes to get this country moving and growing productively again.

We are not prepared to stand by and watch New Zealand be held back by utterly inadequate transport networks, inadequate telecommunications services, and inadequate electricity supply.

As I said at our National Conference two weeks ago: It's time to take the handbrake off. It's time to turn the growth engine on.

Electricity Supply

A critical component of that growth engine is our energy sector and, in particular, our electricity supply.

Later today, National's Energy Spokesman, Gerry Brownlee, will release National's energy policy. I'm going to take this opportunity to highlight key aspects of that policy, as it relates to the electricity sector.

National's focus is on security of electricity supply, upholding New Zealand's environmental responsibilities, and ensuring affordable electricity supply for consumers.

First, security of supply.

National has significant concerns about whether, under Labour's current policy settings, New Zealand can have confidence in the security of our future energy supply. We believe that policy changes are required to give New Zealanders certainty that the lights will turn on tomorrow and in the years ahead.

Our country simply cannot afford to have insecure supply of electricity. Our economic well-being, our growth prospects and our earning power all depend on New Zealand families and businesses knowing they can rely on there being enough electricity to service their needs.

Labour's record in this area is appalling. This winter was the third one since this Government came to office that New Zealanders were asked to seriously save power.

It's a travesty that in a country as energy-rich as New Zealand that every couple of years there have to be television advertisements and begging from the Government for the public to turn off their electric blankets and heated towel-rails, and for business to cut back on production.

When industry has to cut production because of an electricity crisis, we all lose out.

Treasury estimated that GDP fell temporarily by $200 million as a result of the electricity shortage in 2001. The Reserve Bank has quoted estimates by market observers that the impact of the 1992 shortage was $600 million on the country's bottom line.

While these things are hard to measure, what we know for sure is that uncertainty about power supply knocks the confidence of businesses that rely on electricity to grow.

Despite these crises, barriers to the development of new generation capacity remain. Only around 1140 MW of net new capacity - around 125MW per year - has been built since 2000. After each crisis we've been assured it won't happen again. New Zealanders are quite rightly sick and tired of being told that.

Put simply, if you rely on electricity to make your product, and you want to grow, then you need to know there will be enough power available now and in the future. For some years now New Zealand industries have not had that certainty.

National wants our economy to get growing strongly again, so we will ensure businesses know there will be enough electricity for their investment and expansion plans.

National will make security of supply a priority.

There are four key things we will do to ensure New Zealanders can have confidence that they can turn the lights and the growth engine on.

1. We will acknowledge the extent of future demand.

National will be realistic about the likely need for more electricity supply to keep New Zealand growing in the years ahead.

We are highly sceptical of Labour's claims that New Zealand will only need 150-175MW per year of new electricity capacity in future. That claim is based on an assumption that New Zealanders' demands for electricity will grow by only 1.2% per year.

To put that into context, New Zealand's historical average is a 2.2% yearly increase in demand for electricity. It's likely that a growing economy and population under National will need far more than 175MW per year of new capacity to keep pace with demand. In fact, only three years ago the Electricity Commission was planning for 2% to 2.7% per year growth.

To ensure security of supply, and to promote economic growth, we must be realistic about future growth in electricity demand. National believes that growth in demand will be closer to 2% per year than the 1.2% per year that Labour has flagged.

National will plan for realistic levels of future demand growth, because running out of electricity is a risk we are not prepared to take.

2. We will reform the Resource Management Act (RMA) and introduce Priority Consenting to improve the processes allowing generation and transmission infrastructure to be built.

Security of electricity supply relies on new electricity generators and complementary transmission being built. But right now it can be very hard for power companies to build and develop that infrastructure.

The RMA is a key barrier. It has created a climate of uncertainty around new development and has delayed decisions that need to be taken quickly. It gets in the way of new projects and sucks excessive money and time from electricity generators who are trying to provide for the future.

National's reform of the RMA will affect the energy sector in two key ways.

The first is our plan for Priority Consenting, which I outlined a few moments ago. It is possible that some future large electricity generation and transmission projects would be facilitated under this new law.

The second is our detailed plan to streamline and simplify the day-to-day workings of the Act. The reality is that many new generation projects are on a small scale and won't fit the criteria for Priority Consenting. It is vital that these projects are subject to an efficient consenting process.

National will introduce to Parliament a bill to reform the RMA within the first 100 days of our first term. The legislation will include removing the ministerial veto over consents, reducing the number of consent categories, and putting an end to frivolous and vexatious objections.

National's detailed reforms of the RMA will send a message about the seriousness of our support for considerable new investment in electricity generation.

3. We will send a clear signal that gas will be a part of the energy mix needed for security of supply.

New Zealand has fantastic renewable resources like hydro and wind, and it's important we develop those. But the lesson from this winter is that thermal electricity generation is essential in keeping the lights on.

Labour's ban on new thermally-fuelled electricity generation is just dangerous political symbolism.

To prove the point, you need only look at this year's electricity usage. At times this winter, thermal electricity was providing over 50% of New Zealand's power needs. It is a great irony that if it were not for every bit of thermal generation running earlier this winter, we would have been in the dark, cold, and in many cases, out of work.

The reality is that New Zealand relies on gas for security of supply. Gas plants like the highly efficient e3p plant at Huntly can run around the clock. If the wind stops blowing and the water stops flowing, gas just keeps going.

National will therefore overturn Labour's ban on new base-load thermal power stations.

4. We will streamline the investment and decision-making processes for investing in new electricity transmission.

New Zealand is a small country; yet it now has a very complex and costly electricity regulatory environment.

We have 28 electricity distribution companies effectively under price control from the Commerce Commission, and we have Transpower, the monopoly transmission provider being guided by price-path regulation from the Commerce Commission and technical and economic regulation from the Electricity Commission.

These overlapping roles result in second-guessing and considerable duplication of effort.

That duplication carries a cost that New Zealanders end up paying as electricity users and as taxpayers. What's more, in spite of the well-meaning bureaucracy, concerns about transmission have contributed to uncertainty about electricity supply.

For these reasons, a National Government will undertake a careful review of the roles that the Commerce Commission, Transpower, and the Electricity Commission take in the electricity sector. We will do this with a view to ensuring the best outcomes for consumers - in terms of security of supply and affordability - and we will do so with the goal of eliminating unnecessary duplication and cost.

One possible outcome of this review is the dis-establishment of the Electricity Commission. That would be a significant change, and National's intention would be to carefully work through the options in its first year in office prior to making it.

What is clear, however, is that the status quo is not good enough.

Environmental Responsibilities

In addition to security of electricity supply, National knows that New Zealand must balance its energy needs with its environmental responsibilities. We are very conscious that energy contributes to greenhouse gas emissions and our Kyoto liability.

It's worth noting that while Labour has talked the carbon-neutrality talk it has failed to walk the low-emissions walk.

Labour's failure to reform the RMA has hampered environmentally friendly development initiatives. The result is that in the past eight years well over half of new electricity generation has come from thermal sources.

What's more, the failure to ensure security of supply has led to dirty last-minute electricity solutions. In the first six months of this year, for example, the diesel-fired emergency generator at Whirinaki burned 36 million litres of expensive and dirty diesel.

National is determined to provide clear policy settings that favour renewable electricity generation.

Within nine months of taking office, we will introduce an Emissions Trading Scheme (ETS) that balances our environmental responsibilities with our economic opportunities. This scheme will put a price on carbon emissions and will send appropriate signals to those wishing to invest in new generation.

We believe that one effect of our proposed ETS will be the phasing-out of the use of coal to fuel the power station at Huntly. This could significantly lower New Zealand's emissions from electricity. We also expect that our proposed ETS will result in no new coal stations being built - unless proven technologies for carbon capture and storage change the emissions profile of coal.

I mentioned earlier New Zealand's extraordinary renewable energy resources, such as wind, hydro, and geothermal power. We need to unlock the potential of those renewable resources to help them contribute to future electrical energy demand.

Labour has set a target for New Zealand to have 90% renewable electricity generation by 2025. The current figure is around 65%. National supports the 90% renewables target, and we believe our reforms of the Resource Management Act will encourage new renewable electricity generation.

However, we will not let the 90% target get in the way of security of supply. We will not sacrifice energy security and our economy for the sake of a number. There may well be times by 2025 when 90% of electricity demand is met from renewable sources. But we will continue to need the constant reliability of thermal generation.

Affordability

Before I leave the subject of electricity supply, I'd like to make some brief comments about affordability issues.

One thing you can be sure of in any market is that scarcity of supply will result in upward price pressure. Labour's failure to ensure there is enough new generation investment has seen exactly that occur.

Over the past five years, households have faced electricity price rises of 48%. National is very conscious of the pressure these electricity price hikes have put on households and industry.

The Electricity Commission is currently conducting a review of the electricity market. National will receive that analysis with interest and we will take action on any recommendation we agree will improve the market and improve affordability for consumers.

Furthermore, National will support energy efficiency by making sure the Energy Efficiency and Conservation Authority and its programmes are well funded.

Increased energy efficiency saves households and the country money in the long run. You can expect National to adopt an approach of encouragement rather than a sledgehammer-like approach that denies consumers' choice, like we saw from Labour and the Greens with their outright ban on incandescent light bulbs.

We will also not let energy efficiency projects get bogged down in red tape.

To contrast our approach to energy efficiency with Labour's, you need look no further that the mess over solar water systems. The Government's $16 million assistance scheme - set up to encourage expansion in solar - actually led to a drop in installations. The solar industry, like so many, has become tangled in a new layer of red tape.

That is why National has announced a simplified $1,000 grant scheme for homeowners to go solar, alongside reforms to the Building Act, with the aim of doubling total solar water installations within 5 years.

Conclusion

Ladies and gentlemen, National is ready and eager to make the policy changes needed to get this country moving ahead again with strong non-inflationary, productive growth.

In the infrastructure area, as in so many others, our approach will be fundamentally different from Labour's.

* We will spend at least $5 billion in additional Crown capital on public infrastructure projects.

* We will alter the debt track to achieve this.

* We will do what it takes to encourage significant further private investment in infrastructure.

* We will invite the private sector to work in partnership with government to build and maintain the infrastructure New Zealanders need.

* We will undertake extensive reforms to the Resource Management Act.

Ladies and gentlemen, National is the party that is promising to do what it takes to unclog New Zealand's arteries and go for growth. We will turn the growth engine on to ensure a better future for all New Zealanders.

We are serious about these policies, and let me say that if you're serious about infrastructure, then this election you should be voting for a National Government.

ENDS

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