Financial Review Debate — Ministry of Transport

I tell the Committee that tonight I intend to focus specifically on the issue of funding for roads. I want to use a couple of Government pieces of advice to see whether I can convince the Minister—and I am not try to be smart-alecky, rude, or nasty—that, in fact, road funding needs to be put onto a more consistent, ongoing basis, with some longevity that the industry can work towards.

Dr Michael Cullen makes the claim that at present the Government, with its couple of one-off announcements for Wellington, and with the announcements for Auckland, Waikato—yet to come, I think—and Tauranga and the Bay of Plenty, is currently spending about all the petrol tax at any rate. I think he is right, and I will try to be as fair and balanced as I can. The National Party has, for some time, believed that in order to provide some certainty for the contracting industry, we should take all of the petrol tax that is collected: approximately $1,200 million rather than approximately half a million dollars, with the other half a million dollars being put into the consolidated account.

Those are just rough numbers, but there is a difference. If Dr Michael Cullen is right in saying the Government currently spends about $1,200 million on roading, which is money from the consolidated account, why is there a need for the change if the amount of money is the same? The reason is that it provides some certainty for the industry and for road-building contractors in the future. They will know, as the money is collected, that it will go towards the National Land Transport Programme, and work its way through to the National Land Transport Fund, so it can be spent. All that money will be required over the coming years, and I think the Minister is very aware of that in terms of an infrastructure deficit that has accumulated over decades. I am very happy to openly admit now there is an infrastructure deficit—and I know my colleague Tau Henare has admitted that on his radio show—so I will say again that I think we have underfunded roading in this country for decades.

If one looks at the figures, one sees they show that back in the 1980s there was a massive funding drop. When the new Labour Government came in, in 1984, the funding dropped from about 1.3 percent of GDP down to under 1 percent, and it has stayed there. But anywhere else in the OECD the average has been about 1.3 percent. For those countries we would aspire to be like, such as Australia, and certainly its eastern states—New South Wales and Victoria—the percentage is about 1.5 to 1.6, or, in fact, 1.8 when one adds private sector spending to the percentage. So even if we were to move all the petrol tax over, and according to Dr Cullen we are spending a similar amount to that right now, it will not be enough and extra money will need to be spent.

In the two 5-minute calls that I will take I want to draw attention to some advice that I think Ministers in this Government should be very wary of with regard to how the current amount of money—and it is not enough—is being spent. The first issue I want to refer to is a Treasury report marked “In confidence” and dated 28 June 2005, so it certainly comes into the period we are considering. The report is to the Minister of Finance, and I am happy to table the report or give a copy to members if they would like to see it. This is not the National Party’s view, but that of Treasury analysts, who state in section 20 of the report, on page 8: “Insufficient infrastructure may constrain productivity growth. Treasury’s report on New Zealand economic growth argues that infrastructure is a facilitator of economic activity. If investment in infrastructure fails to respond to a growing economy, then bottlenecks result.” We agree with that. I think no one here in this Committee, except maybe the Greens, would fail to agree with that.

The report goes on to state: “A recent internal Treasury project examines the questions of whether, from a national welfare perspective expenditure on roads is sufficient.” The report then gets to be really interesting: “Transfund conducts comprehensive cost-benefit analysis of potential projects and generally rejects projects that have rates of return less than 55 to 60 percent.” I repeat: “and generally rejects projects that have rates of return less than 55 to 60 percent.” The report goes on to state: “The methods Transfund uses to conduct the cost-benefit analysis appear to be sound”—so that is good news; they appear to be sound—“and may, in fact, be underestimating the return from proposed projects.” Again, that is something really worthwhile to focus on. They appear to be sound methodologies, but they may actually be underestimating the value of these roads. The report then states: “This suggests substantial road infrastructure underinvestment.”

That comes from Treasury, not the National Party, and I remind the Minister that we are not having a smack at him. The Treasury report states: “New Zealand seems to be passing up road investments that would earn a very high return”. I will repeat some of that, because it is good: “New Zealand seems to be passing up road investments that would earn a very high return (certainly much higher than the return earned by marginal investments in the private sector). Insufficient road investment may be a bottleneck constraining overall productivity, although we don’t know just how big the problem is, or how much the aggregated productivity would be if these constraints were eliminated.” I say that every member of this House should read that report, because I think that nails it in a nutshell from one side.

I will tell the Minister why I am concerned about the one-offs and the bits and pieces—we will fund this, and we will give a bit to that, so Wellington will get a chunk of this and then it will get that, and we will do the Waikato next, and we have done the Bay of Plenty, and so on. It is because the incoming Treasury briefing to the Minister of Finance is almost the complete antithesis of what I have just read out. On page 16 it states: “Any further investment in the short term is likely to result in cost escalation rather than improved transport outcomes. … Since 2004 there has been a move away from the benefit-cost approach for determining funding priorities as a consequence of the New Zealand Transport Strategy,”—so that the New Zealand land transport strategy that was brought in a few years ago has a consequence, and we have moved away from that approach—“as well as a number of regional transport packages. There is a danger that this had led to some projects that have relatively low BCRs”—benefit-cost ratios—“being funded.” So there is the Treasury warning.

💬 Hon Mark Gosche: It may be underfunding.

Mr Gosche can get all excited over there on the Government benches if he wants.

💬 Hon Mark Gosche: They are the roads you did not build.

But let me tell members that that is the Treasury briefing of 2005.

Mr Gosche has gone back to saying those are the roads that we did not build. Let us get something clear about the time frames. The National Party went out of office last century. Labour has been the Government ever since, and to keep going on about it all being National’s fault belies the argument about how quickly one could actually build the roads. In Melbourne, for example, the ConnectEast road—a 39 kilometre, 3-lane either way roading project is to be built by the private sector in 3 years flat. So if, in fact, it was all our fault and the problem goes back into the 1990s—and let us go with that—who has been the Government for the last 6½ years, heading on to 7 years?

💬 David Bennett: Nobody knows.

That is a good answer: “Nobody knows.” One can keep going back into history, saying it is all National’s fault, for only so long. I know that is the trick of a new Government and is probably even the trick of a Government that is just moving into its second term. But, by the time a Government is starting into its third term, the public says: “Hang on.”

This Treasury document states—and again I say it is not a National Party document, although it is in a lovely blue colour and I commend Treasury for sticking with true-blue colours; that is great—“There is a danger this has led to some projects that have relatively low BCRs being funded. We would recommend that all land transport funding should be based on a rigorous, nationally consistent, and transparent allocation framework rather than targeted to specific regions or modes.”

I tell the Minister that in reviewing the whole issue of transport and road funding, we should look at both of those articles from the Treasury, because both of them are right. One, we are significantly underfunding roading. Not only will the amount of money that comes from the petrol tax be required but so will a big chunk more. Two, it is unlikely that that money will come from Government coffers—very unlikely. It would probably be unlikely to come from Government coffers if National was in Government. So the money will have to come either from debt or private sector funding, and every member of this Committee knows that. Yet where are the private sector road ventures in this country? There is not a mutter or a murmur of such ventures—not one.

I will not hear the argument that no private sector road venture is economic here. I have heard that argument before. In Britain, the Labour Government ran that argument. It said there was no room for private roads in Britain. Two weeks ago I drove up and down on the M6 toll road in Birmingham. It is a fantastic, 27-mile long road that Tony Blair—Tau Henare’s friend—and the Labour Government built. They said it had worked out so well that they had the appetite to build a whole lot more private roading. But that does not happen here.

The last few remarks of Maurice Williamson were not as well put together as his earlier remarks, which I thought were very helpful and contributed very usefully to the debate. The member said he wanted to talk about funding for roads. Land Transport is about a lot more than roads, but I will respond on the topic he has raised, because that is the fair thing to do. Although the national land transport strategy is about much more than roads, we can talk about roads for a while. I thought the member made a pretty good point. He has witnessed, when he was Minister and subsequently—during the course of this Government—lots of changes of plans, delays, advancements, things coming on and off the schedule, money being put in by Governments, though it needs to be said that that has happened more since the change of Government than before. As he pointed out, there has been a bunch of regional joint official group projects—in Auckland, initially, then in Wellington a couple of times, in the Bay of Plenty, and, soon to be announced, in Waikato. All of those things are true. The Government has continued to put more money into the National Land Transport Fund by capital injection. Maurice Williamson has argued that we simply need to shift all of the money that is nominally put across to the consolidated account to the National Land Transport Fund, in order to give certainty.

It is not a bad argument. I say to the member that the Government is currently looking not at doing what he suggests—I say straight up—but at ensuring that we can get a higher level of certainty, especially in the next few years. Certainty in years 9 and 10 will always be a challenge. Certainty in the first several years is certainly a possibility.

I need to point out to the member that because oil is experiencing a very significant increase in demand, and because it will soon, at some stage—in some year, some decade—show a maxing out of supply, we will see the price of petrol go up. In the event of us not being able to shift adequately or quickly enough to, for example, biofuels or other forms of motive power, we will see the use of motor cars drop. Indeed, technology already allows for the use of motor car revenue to drop, so he does not have a panacea. If members can imagine in 3 years from now the importation of second-hand hybrids into this country, or the very significant increase in the sale of new hybrids, they will begin to see that the certainty that the member is seeking is actually quite elusive. He is a smart enough guy, and he has been—

💬 Hon Maurice Williamson: We need to go to direct charter.

He has already got an answer to that. I am just saying that the position that was put up by the member does not provide all of the certainty that he and I would wish it to.

I want to take issue with the member on the great thing of the benefit-cost ratio. I say to him that if a person wipes himself or herself out as he or she approaches a bridge in Southland—as a relative of mine tragically did—or if that happens twice, then there will be a new approach to that bridge. It may be—not in the case that I mentioned—that both of those people had been drinking. It would still count, and that bridge would still be realigned because of those two lost lives, when a word in the publican’s ear might have done the job. That is where a benefit-cost ratio falls down. One cannot get killed on an Auckland motorway when traffic is snarled up. It is not going fast enough. That is why during the 1990s, when the National Government paid undue attention to a benefit-cost ratio, it ended up putting its investment in the wrong place—I say that assertively.

I quote an email I received not so long ago from a board member of Transit. This board member extolled the virtues of the “new” approach, which is more holistic, where more factors have to be taken into account, and where a bit of lateral thinking has to take place. Transit had made a very good decision by its standards and decided that it had done a very good job. The board member’s email said that in the days of the benefit-cost ratio he would roll up for a meeting, have a look at the page of projects for that month, work his way down the page because it is ranked from the highest benefit-cost ratio to the lowest, draw a line when Transit ran out of money for that month—which he said was never far enough down the page—and pick up his brain at the door on the way out. That is not good decision-making. I say to the member that I understand his attachment to benefit-cost ratios. We still use them to an extent. It is a good methodology, but like all methodologies it is a good servant and a bad master.

Report noted.

Ministry of Māori Development