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Invest in the infrastructure that the economy needs for growth
We understand that infrastructure is a key priority for you. You have identified ‘quality infrastructure' as having a central role in lifting national productivity, improving public services and generating long-term economic growth. We have interpreted your interest in ‘quality infrastructure' as an interest in targeted investment in infrastructure that is demonstrated to be growth-enhancing and positive value-for-money. We provide options to assist you in achieving that outcome.
Our overall advice is:
- There is a need for more efficient use of existing infrastructure and a more active role for demand management - particularly in regard to infrastructure assets that have a tradition of free access: water and roading. This means greater direction toward user charges and tolls.
- There is also a need for more rigorous project evaluation processes to ensure that public funding is directed to projects - across the infrastructure sectors - that are able to deliver the greatest value-for-money.
- The factors most conducive to private sector investment - regulatory certainty; the avoidance of any crowding out of private sector investment; and the maintenance of a predictable, ‘no surprises' investment environment for all investors, both domestic and foreign - must be safeguarded and enhanced where necessary.
On the last point, we note that your proposed reforms of the Resource Management Act are likely to assist in facilitating greater private sector investment by reducing the costs of infrastructure development and improving investor certainty.
A more detailed response to some of your other infrastructure policy priorities is provided below. We can also provide fuller briefings and cover more topics when you are ready to have this discussion.
| Policy proposals | Treasury comment | Recommendations/implementation advice |
|---|---|---|
| National infrastructure plan - Would have a 20-year timeframe and be developed in conjunction with local government, taking account of relevant external factors (such as oil pricing). Its purpose will be to set clear direction and identify priority projects. (The $1.5 billion investment in broadband discussed below will be a component of the plan.) |
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We recommend that the plan is supported by a multiple-stage eligibility process to ensure that only those projects that are genuinely growth-enhancing are selected. We also recommend further consideration of long-term risks, including the need to ‘lock' funding in beyond electoral cycles and to allow for walk-away provisions where priorities change. |
| Investment of $1.5 billion in a new broadband network - Expectation that private sector investment will at least match that of public funding; the network will be open access and capable of reaching up to 75% of the population; the network will not be expected to provide a commercial rate of return, and any return that might be made on government investment may be applied as a subsidy to service costs. |
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If additional investment in broadband is to occur, we recommend that the Broadband Investment Fund is immediately abandoned as this is not an appropriate funding model for a national network. We have developed a practical framework that will assist in making broadband investment decisions that promote future competition, and can advise on potential investment options. |
| Electricity reforms - Four specific reforms have been signalled: revision of demand projections; reform of the RMA to remove ministerial veto over consents, reduce the number of consent categories, and limit grounds for objection; overturning of the ban on new base-load thermal power stations; and streamlining of the investment and decision-making processes for investing in new electricity transmission. |
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We would suggest immediate legislation to repeal the Renewable Preference part of the emissions trading legislation. |
| New financing methods - Introduction of longer-dated infrastructure bonds for quality long-term assets and more routine use of public private partnerships (PPPs). |
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We recommend that Treasury take a lead role in implementing and overseeing any more active PPP programme across government. |
