Statement made by KPMG

Infrastructure spending in Budget 2009 sticks tightly to previously signalled priorities. The headline figure is a $7.5 billion boost to infrastructure spending over 5 years.  The majority of capital spending will be targeted to roads ($1 billion extra over 3 years), ultra fast broadband ($290 million as the first tranche of the $1.5 billion plan), school building and upgrade ($523 million), hospital capital expenditure ($245 million), new/upgraded state houses ($125 million) and rail locomotives ($115 million).  These infrastructure investments are well below the Budget’s increases in operating expenditure to frontline services, for example $3 billion extra to health over 4 years.

Private finance does not feature heavily as a funding solution for infrastructure in Budget 2009.  As one example, while the need for a new prison has been flagged for some time, the Budget signals the Government’s preference instead to move to double bunking at a lower capital cost.  This makes some sense in terms of driving greater utilisation from existing facilities at marginal cost, but misses the opportunity to leverage private finance, design and construction expertise.

Other than broadband, much of the infrastructure spending retains a feeling of business as usual. Traditional public sector service provision continues to be the norm.  The ability of private and not-for-profit sectors to assist the government in delivering more and better public services through PPPs, as is happening to a great degree in Australia, remains largely untapped by this Budget.

There are, however, reasons to believe that this Government’s mind is open to more innovative service delivery models. The government has flagged a willingness in several areas to engage the private sector in delivery of infrastructure-related public services. Minister Steven Joyce’s broadband plan will clearly create significant opportunities for private sector investment and service delivery.  The Minister has also flagged his interest in using a PPP solution to procure the new rolling stock for Auckland’s electrified commuter rail network.

It is also clear that much of the work that could lead to private finance solutions is still in the planning stages.  The Budget speech makes reference to the new National Infrastructure Unit, which is in the process of drawing together a 20 year infrastructure plan and priorities.  By the end of 2009 the Government hopes to have a far clearer picture of investment requirements, which will give it a better understanding of what will fit into its spending plans.  Given the reductions in future public spending, and significant additional public borrowing programme, flagged in the Budget, it is hard to imagine that Budget 2010 will not contain a greater focus on leveraging private investment into infrastructure if this Government truly wishes to “clear the bottlenecks that hold back a growing economy”.

Full commentary attached and available at www.kpmg.co.nz covering the following:

Government’s focus on spending limits assistance for SMEs

Budget 2009 economic overview: charts and figures

No surprises on Government’s expectations of State sector spending

Real oil still to come on energy front

Science funding boost but business innovation not a priority

Tax Commentary: Personal tax cuts deferred, otherwise business as usual for now

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