23 November 2006 Speech Notes

Government commits to world class infrastructure

Speech to New Zealand Council for Infrastructure Development's "Building Nations" Symposium, Villa Maria Wine Estate, Auckland

Thank you for the invitation to speak to you this morning about the importance of world class infrastructure for New Zealand’s economic well-being.

We all share a keen interest in this – that is why we are here today.

Two weeks ago, I released the government’s strategy for securing New Zealand's future prosperity and forging a unique New Zealand national economic identity – a strategy for economic transformation.

The economic transformation agenda recognises that infrastructure is a key enabler of economic growth, and as such, is one of the five key themes of the agenda. It also recognises that world class infrastructure contributes to the other key themes of the economic transformation agenda – such as supporting growing globally competitive firms, supporting environmental sustainability, and helping to establish Auckland as an internationally competitive city.

We all want world class infrastructure, but what does it actually mean?

It means that we need to address New Zealand’s historical under-investment in infrastructure so that actual and perceived infrastructure bottlenecks do not constrain day to day commercial activity and investment confidence. To be successful, New Zealand’s globally competitive firms will need certainty of access to effective and efficient infrastructure, including transport, energy, ICT, and water and waste.

It also means that our infrastructure, in particular our transport infrastructure, is efficient, reliable and has sufficient capacity to support large international events, such as the Rugby World Cup.

But it’s not just a matter of more construction. Our economic and physical geography and low population density result in relatively high costs of providing infrastructure across the country. This means that there are substantial benefits in encouraging more efficient use of what infrastructure we already have. Learning how to make better use of what we’ve already got through public education, and moving towards some judicious pricing of traditionally non-priced services is also important. We need to find ways to spread demand for infrastructure services more evenly; and even reduce them where this can be done without imposing material economic or social costs.

We also need to be realistic. Infrastructure investments are large and lumpy, and are usually in competition with each other for a share of a limited capital budget. Overbuilding has the risk that while we build confidence, we also build costs, and it is important to make sure that we don’t lose sight of the fact that the cost of doing business in New Zealand is as important as the ease of doing business here.

Secondly, infrastructure is a means to an end. It is not an end in itself. It provides a service that makes it possible to do business. If we can find other more cost effective ways of delivering the service we should go for it. A big build is not always the best option.

Finally, we would be blind if we did not acknowledge that the neighbourhood and environmental impacts of infrastructure investments are increasingly becoming a key component of decisions on them.

These, then, are the four fundamentals: adequacy, cost, efficiency and environmental acceptability.

The government has recently shown that it is willing to step up its spending. We want to see more action, and this is a more important issue than whether new construction is privately or publicly funded.

The Government is open-minded about use of public private partnerships (PPPs). We recognise that there can be advantages in bundling finance with construction and service provision of infrastructure into one package. That's why transport PPPs are specifically allowed for under the Land Transport Management Act 2003 (LTMA).

Issues that need to be considered before PPPs would be put in place include whether the gains from better allocation of risks and rewards under a PPP can alternatively be obtained by separate contracting for elements of the new investment. PPPs can also involve considerable transaction costs. The cost of New Zealand government borrowing is lower than alternatives, and debt arising from some types of PPPs may need to be recorded in the Crown's accounts, both of which may reduce the attractiveness of PPPs, especially for a country with relatively small scale projects.

Taking all this together, PPPs do face some hurdles in New Zealand. In relation to roads, there are also some procedural requirements in the LTMA, but arguably they are consistent with good practice. Nevertheless, there are many ways for the private sector to participate in infrastructure provision. Certainly we have come a long way from the days of the Ministry of Works, when design and build of roads, rail, airports, hospitals and schools were highly centralised.

Infrastructure issues have been the focus of a number of important projects in recent months. However, I want to focus on two pieces of important work – the government’s economic transformation agenda, and the Auckland region’s Metro Action Plan – because they set out the long term strategic framework for transforming the New Zealand and Auckland economies, respectively. It is important to have a clearly articulated long term framework to base infrastructure planning on, and world class infrastructure features prominently in both action plans.

The economic transformation agenda sets out an indicative detailed action plan for attaining the world class transport, energy and ICT infrastructure that we need. The government’s priorities include:

• development of a New Zealand Energy Strategy which clearly articulates a long term strategic direction and priorities for the energy sector;
• continuing to address past under-investment in the land transport system – an additional $1.3 billion was allocated in Budget 2006 to reinstate the National Land Transport Programme and to accelerate major state highway projects;
• implementing changes to the telecommunications regulatory framework, and continuing to implement initiatives under the Digital Strategy, which has achieved great results a year and a half into its implementation.

The Metro Action Plan, which was released by the Auckland region in October, is a platform for delivering a single integrated plan for lifting the productivity of Auckland. The project is being progressed by the Auckland Regional Council in partnership with the government. Key actions highlighted in the infrastructure theme include the need to co-ordinate infrastructure planning, decision-making and investment; and ensuring that the region has the security of energy supply and affordable high-speed broadband that it needs.

The Metro Action Plan moves us all towards a joint vision and a joint plan for action for the Auckland region. The government agrees, and looks forward to working closely with Auckland on how this can be achieved.

It is also exciting because it is a great example of the growing trend towards greater partnership and collaboration to achieve a common a good. We have been working closely with Auckland local government in recent months, but look forward to exploring other partnership opportunities with other local governments and the private sector.

Having a clear picture of what we want, why we want it, and how to achieve it, the next question is “what’s missing”? This takes us to one of the key questions of this symposium – is a national infrastructure plan valuable?

I don’t have the answer to this question at present. It raises more fundamental questions about what role such a plan might play given that there already sector-specific plans and strategies; and whether it make sense to have a common plan for all infrastructure sectors given the differences in ownership, regulatory, governance and funding arrangements across sectors. These questions need to be considered carefully. No doubt today’s symposium will also provide insights to this question.

In closing, I would like to acknowledge the New Zealand Council for Infrastructure Development for their continued interest in infrastructure, and for continuing to ask challenging, but important questions. In particular, I would like to acknowledge the Council’s most recent report with Kensington Swan on planning issues in overseas jurisdictions. I know that my officials have found this valuable.

Thank you once again. I look forward to hearing about the learnings from this symposium.

Ends

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