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Addressing the $210 Billion Infrastructure Deficit
New Zealand is facing a substantial infrastructure deficit, amounting to $210 billion, and the situation is getting more intense thanks to recent events like Cyclone Gabrielle and the Auckland Anniversary weekend floods. These two alone have incurred costs estimated between $9 billion and $14.6 billion.
Communities across the country are grappling with a lack of basic infrastructure, from inadequate drinking water quality and overwhelmed stormwater drains to congested roads, unreliable public transport, power outages, and cell phone black spots.
These widespread issues are undeniable indicators that New Zealand infrastructure is struggling to keep up with the reasonable demands of the growing Kiwi population.
The New Zealand Infrastructure Commission, Te Waihanga, states that a $31 billion annual investment for the next 30 years would be needed - just to catch up.
This level of investment amounts to nearly 10 percent of our GDP each year—an enormous sum of money that is both unsustainable and likely unachievable. However, application of insufficient investment into our critical infrastructure poses long-term economic challenges.
Fortunately, the government has recognized this gap and is making progress in addressing the issue. Te Waihanga's CEO, Ross Copland, stated that there is already a committed pipeline of $92 billion worth of projects slated over the next five years – and that’s excluding the major undertakings like Auckland Light Rail or a second harbour crossing.
While $92 billion is by no means a small sum, and if we assume that the $92 billion will be delivered in full, it still falls seriously shy of the approximately $210 billion needed.
Consequently, approximately $118 billion remains to be secured. Failing to find the necessary funding would mean scaling back or outright abandonment of infrastructure aspirations and grand plans – as well as the basic necessities.
At some point, New Zealand must acknowledge that a never-ending source of funding is not forthcoming and we must find alternative ways to pay for this critical infrastructure.
Despite the fact that the country is already allocating more borrowed funds to infrastructure than ever before, the current level of investment is insufficient. If we want to enhance and fortify our existing infrastructure in order to make it more resilient in our changing climate. While we possess an estimated 80 percent of the required infrastructure, we must also construct new facilities.
Considering this lack in context of such a deep deficit – it seems clear that a broader range of funding and financing options, including private sector involvement, must be explored. The era of ultra-low-interest rates has concluded and yet the government recently borrowed $6 billion for the National Resilience Plan.
Borrowing in pursuit of constructing the long-term assets our society requires is logical - after all it represents an investment that spans generations and would enrich not only our lives but the lives of future generations of New Zealanders. There is argument to be made that the private sector can and should play a crucial role to finance infrastructure projects such as these at fair rates of return.
Public-private partnerships (PPPs) may have gone unrecognized by most of us but they have been an important factor in the economy for years. There have been a few PPP-funded projects in the last few years which encountered difficulties and led to general scepticism towards the model. Learning from those project’s issues in order to build upon the success stories that we have also had in this country.
A notable triumph PPP was the ultra-fast broadband rollout.
The $1.7 billion of government funding and $5 billion private collaboration between the government and Chorus resulted in a very successful program. Completed within the designated timeline and budget, resulting in superior technological connectivity, and improved coverage throughout Aotearoa – something especially valuable during the challenges posed by the Covid lockdowns.
Not to mention our listed airports and port companies are a good example of these type of PPP successes. In fact, Napier Port used the capital from its share market listing to deliver the Te Whiti wharf. A project that came in several million under budget and ahead of schedule.
Recognizing that both local and central governments lack the capacity to finance all of Aotearoa's infrastructure needs, accessing private capital enables the acceleration of projects that would otherwise face delays of several years – at potentially more attractive rates. Additionally, it frees up funding for public and social infrastructure.
The private sector's capacity to contribute financially to the necessary development and address New Zealand's infrastructure deficit remains largely untapped, presenting a significant opportunity to overcome existing challenges.
PPPs offer a sensible risk-sharing framework that used elsewhere around the globe – and it’s important to remember that the Crown retains full legal ownership of the assets.
Currently, the policy settings in force primarily place the responsibility for delivering public infrastructure on the public sector. This means that infrastructure projects are initiated and driven by local or central government, and only allows for the private sector to rejoin the process in a back-end delivery chain capacity.
However, it could be argued that by engaging with the private sector earlier in the planning process, making improvements to the resource management system, and reducing regulatory barriers, we can make private investment more enticing.
If New Zealand continues to rely solely on the government to finance improvements in transportation, water, and social infrastructure, we will miss out on opportunities to enhance the efficiency and scale of our infrastructure delivery.