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$1 Trillion Bill For New Zealand Infrastructure In The Pipeline

New Zealand is facing up to a $1 trillion bill over the next 30 years to bring the country’s infrastructure up to scratch and to future-proof it to meet challenges, including climate change.

The stark figure is highlighted in ASB’s Infrastructure Report out today which also suggests that a new approach to building and maintaining infrastructure will help to boost the country’s economic performance over the long term.

ASB Senior Economist Mark Smith says New Zealand has underinvested in core infrastructure for many years which has led to a current infrastructure deficit of around $200bn that has exacerbated capacity bottlenecks and hampered the productive capacity of the economy.

“Infrastructure is vital to our way of life and future economic growth, but our investment in it has historically been around 6% of GDP which is well below the OECD average. It’s not coincidental that New Zealand’s productivity performance and incomes are also well below OECD norms.

“While it’s commonly acknowledged that more infrastructure is needed, there are several challenges. Infrastructure investment is inherently risky and expensive. New Zealand also lacks funding, expertise and resources and there is considerable uncertainty around the size of our future infrastructure needs,” says Mr Smith.

New Zealand’s population is expected to be anywhere from 500,000 to two million people higher in 30 years which would require an additional 175,000 to 700,000 dwellings and associated infrastructure.

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Climate change pressures are also becoming more acute with the country’s infrastructure lacking resilience being heavily exposed to natural disasters. In February 2023, Cyclone Gabrielle caused $5-7.5bn in damage to public infrastructure – around half of the total cost of the weather event.

“We need to be thinking about the way we approach infrastructure investment differently to ensure it is truly fit for purpose. That means choosing the right projects, considering new funding mechanisms along with updating policy measures to better manage demand,” says Mr Smith.

The report also suggests that along with new funding mechanisms, political parties need to take a longer-term approach while becoming more aligned on future infrastructure needs to provide greater certainty for investment.

Mr Smith says it is encouraging to see the Coalition Government place high emphasis on infrastructure investment at a time of fiscal belt tightening.

“It’s promising to see the Coalition Government cite infrastructure as a key priority in the 2024 Budget, with the aim to develop a long-term, sustainable pipeline of infrastructure investment. It’s clear however that broad consensus over public funding options would provide more surety. Additional funding may also be required from elsewhere with opportunities for the private sector to step up,” says Mr Smith.

ASB’s Infrastructure Report is available here.

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