Finance Minister (and Infrastructure Minister) Bill English yesterday gave quite an interesting speech to representative of Local Government New Zealand (LGNZ). The topic of the speech related to the need for tax-payers and rate-payers to get the best return possible on infrastructure investment. He also stresses the need for central and local government to co-operate when it comes to prioritising infrastructure investment.

Here’s what he says about the need for cost-effectiveness:

“This Government has increased infrastructure investment – we currently spend about $6 billion a year on the purchase and maintenance of our critical infrastructure and hold about $110 billion in physical assets,” Mr English says.

“However at a time when our finances are constrained, it is vital we get the most out of this investment. That means projects must be properly selected and must provide a justifiable return on taxpayers’ funds.

“The Government is determined to improve the management of its assets – both the current stock and how decisions are made about future investment.

Note the bit underlined. I do wonder whether this requirement applies to extremely expensive motorway projects like the Puhoi-Wellsford Road (which has more cost-effective alternatives) or just to transport and/or other infrastructural projects that Mr English or his colleague Steven Joyce aren’t so keen on.

It’s also interesting to note what he says about the need for co-operation between central and local government:

“A vital step in achieving smarter infrastructure investment in the future will be greater central and local government collaboration. This is one of the areas that will be developed further in the next National Infrastructure Plan.

“Greater collaboration and co-ordination will help ensure the right projects are built when they are needed and that taxpayers and ratepayers get the best possible return on limited funds. I welcome the mayors’ and LGNZ’s constructive approach to this issue,” Mr English says.

I fully agree, but is this basically another way of saying “you local governments need to agree with us!” or is it a genuine “we need to both agree on what’s most needed and what will provide the best return on investment”?

I guess we have to wait and see.

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  1. “That means projects must be properly selected and must provide a justifiable return on taxpayers’ funds”

    But English continues to throw good money after bad in the form of KiwiRail which (apart from commuter rail in Auckland and Wellington and the Cook Strait ferries) provides a negative rate of return?

    1. Maybe you should do an OIA request for KiwiRail’s business case for the Turnaround Plan Obi – and actually see what kind of returns that $750 million investment will provide.

      Also, remember we need to consider what the effects of shutting down the rail network would be on road users – with all those additional trucks on the road we’d need to spend masses and masses on upgrading the roads, trips would take much longer, safety would suffer, roads would degrade faster and so forth.

      Just because KiwiRail loses money doesn’t actually mean shutting it down is a better economic decision. All commuter rail systems in the world lose money but provide wider benefits that more than make up for it.

      1. “All commuter rail systems in the world lose money but provide wider benefits that more than make up for it.”

        I agree about commuter rail systems. But rail freight hasn’t been viable since it first needed bailing out in the 1800s. That’s a factor of it duplicating the road and coastal shipping networks, low population, and some unfortunate engineering choices that can’t be reversed at this stage (such as narrow gauge and multiple incompatible electrical systems).

        I don’t think your costs of additional trucks stack up, even if you ignore that subsidised rail attracts freight away from coastal shipping. I doubt if trips would take much longer due to additional trucks on the road, just because there aren’t that many compared to the number of cars and (except for steep hill climbs) they tend to move at the same speed as cars. I popped down to Ruapehu on Friday and don’t think I spent more than a few seconds stuck behind slow moving trucks. However, if trucks did create road congestion then surely that would de-induce traffic and be a good thing? If people avoided going skiing for the weekend because of congestion then that yields all sorts of environmental benefits that should be counted. And while I agree that trucks degrade the road, everything I have read suggests that they pay their way through user charges.

        As for OIAing the current business case… I’ve seen and worked on plenty of government business cases and don’t trust them. Often the benefits are little more than guesses. Of more relevance would be obtaining the business case the last time rail was bailed out and seeing if the benefits promised were actually realised. Is anyone in government doing benefit realisation studies for infrastructure projects?

        1. obi, a few problems.

          1) Coastal shipping over any significant distance takes days. Even accounting for the horrible state of a lot of the NIMT, you can haul the equivalent of a small ship’s load by train between Auckland and Wellinton in less time than it takes the ship to do the same route. For stuff that’s somewhat time-critical, coastal shipping takes too long. It’s fine for bulk goods, and a better choice than any other means of mass transport, but for containerised cargo train beats it with ease.

          2) You want to “encourage” people to disengage with recreational activities so that we can use trucks to replace rail? Really? “Going skiing for the weekend” has all kinds of benefits to the economy, both the direct ones of money spent and people employed at the ski fields and the indirect ones that accrue from recreational exercise: stress relief, physical health, relationship-building, etc. I don’t consider that to be even close to a worthwhile trade-off, especially when we have a functional-if-under-invested rail network that can ensure that never needs to happen.

          3) Rail covers a lot more than just NIMT, and even within NIMT there’s a lot of stuff that you don’t see. Like Fonterra going to using rail for its main Hamilton facility, and taking an estimated 40,000 truck movements a year off the road. Close rail and that’s over 100 extra heavy truck trips a day, every day, through Hamilton. That article talks of other plans to get major freight customers using rail, taking many hundreds more trucks a day off roads around the country. That adds up to a lot of wear-and-tear.

          4) You say “everything I have read suggests that they pay their way through user charges.” I’d love to know what you’ve been reading. Trucks may pay some of their way through RUC, but it’s far from complete cost capture. Joyce has already said that the permit system for 53T rigs doesn’t capture the extra damage they’ll do, and instead they’re counting on increased economic efficiency to produce extra revenue to pay the difference. Except that only half the permit cost goes to the local authority responsible for the roads over which the permit is granted, and TLAs rely on rates to make up the difference. Most of the extra money won’t be seen by the TLA, but it’s the TLA that has to pay for all the extra damage. The situation’s even worse with RUC, where road taxes go into a general pool for the whole country rather than being returned to the TLAs where the travel takes place. This is how Auckland contributes so much more in roading taxes than it ever gets back to spend on its own transport systems.

          You talk about rail being subsidised, but who’s paying for all the difference between what’s spent on roads and what comes back in road tax? Transport taxes don’t come close to paying for all the work on our roads, even without the money that’s spent on rail (and I note that rail’s not been getting real subsidies until very recently for quite a number of years, and the sums involved are still a pittance when you consider that KR’s wanting $750m over several years while the spend on roads is billions a year), and the difference has to come from the general taxation pool. The more money that has to be spent on repairing roads damaged by trucks, the less that’s available for healthcare, or education, or any of a bunch of other worthy social functions. The reaction to the last time Labour tried to raise RUC, with the trucking lobby screaming blue murder after not being allowed to hoard millions of lower-priced RUC kilometres for a second time, shows you what’ll happen if any government tries to get true cost capture from trucks.

        2. Matt…

          1. I wouldn’t send anything time critical via rail either. It is ploddingly slow, you’ll lose time in various rail yards while the trains are rearranged, and you’ll need to connect to trucks at both ends of the journey. That is why it is mostly used to move logs and bulk primary produce.

          2. I agree with you that recreation has benefits, should be encouraged, and is enabled by provision of efficient uncluttered roads. I’m all in favour. But that is generally considered to be “induced” traffic here and held to be a bad thing. If inducing traffic is bad, then surely de-inducing it must be good? After all, keeping roads uncongested so that people can ski is essentially the same as allowing people to visit Northland on a Holiday Highway.

          3. 100 extra trips a day is nothing. Over 12 hours (dairy farmers are up early and work late) that is 8 trucks an hour or one every 8 minutes. Even if these all used exactly the same route, no one would notice the increase. But, if Fonterra wants this rail service then they can pay for it, or pay for replacement trucks… I don’t mind my taxes subsidising commuters but I don’t see why I should subsidise one of NZ’s biggest companies.

          4. I suspect you can generate figures to prove what ever you want here. If trucks don’t pay their way then they should do. But if they don’t then that isn’t a reason to subsidise Fonterra and the forestry companies.

  2. Is anyone in government doing benefit realisation studies for infrastructure projects?

    Ha, that is a good question. For example the CMJ motorway improvements.

    Prior to the improvements – the motorway was horribly congested
    After the improvements – the motorway is still horribly congested

  3. But admim, think of how much worse it would have got if they hand’t made those improvements. People would no doubt be lining up for five or six hours a day through the CMJ! Why wouldn’t you?!

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