A media release by the Green Party today noted that upcoming changes to the Land Transport Management Act (the bill was tabled in parliament today by the sound of it) will allow NZTA to borrow much more money than they have previously been able to:
Having repeatedly insisted that there is no transport budget crisis, Gerry Brownlee is now seeking the power to borrow to build uneconomic motorways, Green Party transport spokesperson Julie Anne Genter said today.
Transport Minister Brownlee today tabled a Bill before the House that would give the New Zealand Transport Agency the power to borrow large amounts to fund projects, whereas previously it could only undertake limited cashflow borrowing. It also seeks to fund roading projects through Public-Private Partnerships (PPPs).
“National is clearly planning to borrow to pay for its uneconomic motorways,” said Ms Genter.
“The cost of the National Government’s extravagant motorway building is blowing out. The cost of the Wellington Northern Corridor project alone has risen by $300 million in the past three years.
“The Government has been facing a growing funding gap between stagnant road tax revenue due to declining road use and the rising costs of its uneconomic motorway programme.“After cutting or freezing funding for everything but their new pet motorways, National is now turning to putting the cost on the nation’s credit card.
“The Government is seeking to borrow more and use PPPs as a form of backdoor borrowing. That means that uneconomic projects will go ahead, and New Zealanders will be shackled with the interest payments. That is reckless.
The Bill itself has this to say about the borrowing issue:
The Bill will also enable borrowing to be used by the New Zealand Transport Agency to fund future land transport projects, subject to the agreement of the Minister of Transport and the Minister of Finance. Currently, borrowing can only be used to manage the cash flow of the national land transport programme.
There’s always been an argument around why should NZTA have to pay for assets that will last for decades from the money they raise in the particular year of expenditure. This may be a valid point. But on the other hand I think these changes could be considered a further politicisation of the transport spending process and could lead to us ending up in a massive pile of debt due to the RoNS projects of dubious economic value. At least under the current/old system NZTA’s ability to waste money on the RoNS was limited by the amount of revenue they generate in any particular year.
What do you think? Should NZTA be allowed to borrow for capital expenditure or does this just open a giant can of worms?
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Hang on, isn’t this the government that is cleaning up years of overspending by Labour? You know, National, all business like and reducing debt. Gee, they have got a bunch of people sucked in.
In defence of Labour Bryce, I don’t think they overspent so much, rather they introduced systemic but ultimately unsustainable cost commitments such as WFF and interest-free student loans just prior to a global financial meltdown (that they should have but may not have foreseen). These are now difficult for any government, left, right or centre, to wind back. Hence the ongoing borrowing.
Obi & Nick below have covered the rest of what I was going to say – just think mortgages: most people borrow to buy their house, then pay it off from revenue (income) asap. But you don’t borrow to buy a depreciating/short term asset like a car or TV (well, not if you have any sense). But it does seem odd for NZTA to borrow directly as it ultimately adds to government debt. There could be some political subterfuge here, ie keeping it off the balance sheet.
Keeping it off the balance sheet so they can do RoNS and still make tax cuts or provide some sort of giveaways in 2014 election year is clearly the agenda here. Of course, there is nothing unreasonable per se in borrowing to fund infrastructure, it’s just that this is dumb infrastructure. But as people point out below, these are separate issues.
I can’t tell jonno1 – do you really think Bryce is serious? He sounds to me like he is being sarcastic, and that Labour was fairly responsible (overall) while National have said that they are responsible, but tax cuts and RoNS suggest otherwise. FWIW student loans were a panic bribe, not long-term sustainable (nor a good use of public funds) but overall Labour were much more fiscally responsible than this lot – remember all the screaming for Cullen to give away the surplus in tax cuts? Where would we be now if he had? Of course in the current climate we need govt to run deficits. But we need the deficits to paying for sensible things (broadband, commuter rail not roads in Auckland, other stuff NOT roads and tax cuts).
Yup, dead right David.
On re-reading Bryce’s comment David I think you’re right. As for the appropriateness of expenditure on RoNS, rail links, etc, accepting they are all uneconomic in the sense of not providing a positive return to their owners, then perhaps it would be better to canvas the users and potential users. If I commuted from the Kapiti Coast to Wellington, or wanted to shave a few minutes from (or increase the frequency of) a rail journey between Mt Eden and Britomart, then I would have an opinion on what I would be prepared to pay (eg tolls/fares). But neither applies to me. OTOH I’d be happy to pay a reasonable toll on the Southern Motorway if it sped up the journey, because time is money.
Yes that’s the fairly bog-standard way of measuring the benefits of a transport project. Work out the value of the time saved and aggregate it up over a 30 year period with a discount rate to ensure you get a net present value result.
The problem really comes in answering questions about different trip types having different time values (what’s the economic value of a Sunday afternoon drive versus a truck full of high-value freight) and also the somewhat unfortunate observation that speeding up journeys tends to result in longer trips (distance wise), not actual saved time – due to the Marchetti Constant: http://en.wikipedia.org/wiki/Marchetti's_constant
Plus of course there are all the things that this approach misses (like the impact on land values of different transport projects).
I wrote a post on Marchettis work waayges ago:
http://greaterakl.wpengine.com/2010/04/29/the-magic-one-hour-travel-limit/
That’s very interesting, thanks for the links. As a home-based consultant I was thinking more of occasional trips to a specific destination, where either the client or I (well, the client) meets the cost of the time involved, but of course it applies to regular commuting too. In an earlier life I actually moved house when my daily commute reached 45 minutes each way, so I must be Mr Average (sigh). I now live almost exactly in the centre of your 100km diameter circle Nick, although I suspect that driving from Warkworth to Tuakau in one hour is a bit ambitious!
What is the benefit of the type of toll system that is on the northern motorway when it takes longer to pay over the internet or at their pay machines than the time saved driving the damn thing? And which costs people who don’t have/can;t use the internet more.
Why not have one or two lanes each way where you can zoom past and toss a coin (or coins) in a toll hopper? Time saving plus convenient.
Pity NZTA is so ideologically wedded to this camera and electronic payment system.
Hi David and Jonno. Dead right. I believe it is an attempt to borrow money, for what is ultimately a govt dept, while trying to keep the debt off the govt books so to speak. As for the part about Labour, well if National thought all those programs were so bad and unaffordable, why have they not been cut? It’s hard to on one side lambast Labour about these programs and the cost to NZ but not actually do anything about said programs (btw, I support those programs).
If NZTA borrows money to build these motorways, will it be obliged to run them as a business (à la Kiwirail)?
“Should NZTA be allowed to borrow for capital expenditure”
Of course it should. No one should be paying up front for infrastructure projects. Cash-up-front is the sort of financial management a child would propose, because their view of financial management is limited to their allowance, a piggy bank, trips to the dairy to buy lollies, and an aversion to debt.
This applies to the rail tunnel as well. If Auckland Council need $3billion in cash before they start then the thing isn’t going to be built this side of 2112. Why not pay for it out of the income stream that it generates over the next 50 years, or the benefits that it creates over the next 50 years? There is also an issue of inter-generational justice that borrowing addresses.
Obi, I think the distinction is between government funding infrastructure from debt, and NZTA being able to borrow itself.
I’d be surprised if this were anything other than a book entry change. The existing fund pretends to be a separate account, but in actual fact their “cash” assets are just a promise that government will provide the money out of the consolidated fund as required. Their existing income from fuel taxes also all comes via the consolidated fund. I’m presuming that this borrowing will be carried out by Treasury in the same way as other government borrowing, but will appear as a figure in the NZTA accounts. Which is cool… It means that NZTA have to “repay” the amount showing as being borrowed out of future fuel taxes and other forms of interest and ensures that all their business cases have to stack up. Compare with, say, Defence who have to include depreciation on all their military kit in their accounts. At the end of the day, government will still buy a new frigate out of taxation and borrowing, but the depreciation ensures that the capital expenditure is properly accounted for over the life of the asset. And also that Defence maintain and operate their frigates in an manner that maintains their capital value as much as possible.
It’s an accounting change of the type that interests treasury analysts and accountants. And Transport Blog commenters, who seem to take great interest in the minutiae of public accountancy from time to time.
I think we need to split out the issues here. Are the RoNs an appropriate use of public funds? Generally not. Is is in principle a reasonable idea to borrow against future revenue streams so as to fund capital improvements? Probably yes, if the improvements are worthwhile.
Exactly.
The problem is politicians deciding on specific projects in order to win elections.
NZTA could set up a Corporation to manage leased road corridors and operate in such a way that revenue exceeds costs. Like I think NZRail does or did?
I suppose the real question relates to the fact that transport decisions will inevitably be politicised (and this may not be a bad thing, if people actually voted on transport matters). Given this fact, isn’t the requirement that NZTA funds out of money it raises in any particular year a pretty good control on a government of any particular ilk going mad and blowing decades worth of transport spending on a few projects for political gain.
Yes – and that is what concerns me with this Government. They are prepared to politicize transport projects in a way that Labour did not. Cutting spending everywhere but on their pork-barrel RoNs projects.
Complete nonsense.
Labour started the politicisation of land transport funding through the Land Transport Management Act, encouraged by the Greens (who wanted to abolish then prohibition of direction on funding of specific projects so that a Minister could force what was then Transfund to ban or compel funding specific projects). The Greens were, at the time, overly excited about a 0.5km long one way street they wanted stopped called the Wellington Inner City Bypass. Labour slowed it down by asking Transfund if the project appraisal could be peer-reviewed, but ultimately the Minister was advised there was nothing he could do to stop it if the board was of the view that the project met the funding criteria (and the board of Transfund would face judicial review from Wellington CIty and Regional Councils if it stopped it, because the project was seen as clearly meeting its statutory purpose).
The hysteria over that project is now ancient history.
So the idea that there is some monopoly on land transport politicisation is a chimera.
Before the LTMA, Transfund’s statutory independence from the Minister was almost complete. About all that was left was the Minister appointing the Board Members, but the key was Transit and Transfund remained separate with distinct boards (and in fact one of the recommendations of officials was to stop anyone from being appointed to both boards at once). Under that system Transit bid for funds along with local authorities and Transfund largely used the BCR approach to ration funds. It took all of the bids, treated most highway maintenance as high BCR and then rationed road and alternative to roading expenditure on the same basis. The BCR threshold back then was 4:1.
Labour wanted radical change, the key change was to advance a large number of Auckland motorway projects that had BCRs below 4 and to delay a series of rural projects (Ruby Bay Bypass, ALPURT B2 notably) to enable that. Grafton Gully was on the margins of being fundable until steps were taken to make the funding framework far more “fungible”. Essentially Transit and Transfund were told that they needed to prioritise congestion relief in Auckland.
ALPURT B2 was tolled as a way to advance it, but only after it had been delayed long enough (it had a good BCR before it was greenplated) for the LTMA to get passed.
Beyond that, there are umpteen examples of radical politicisation of transport policy under Labour. The ridiculous prevarication over its Kiwi Share veto rights over foreign ownership of Air New Zealand being one, where a unified voice of airline board and officials were saying one thing, and only Qantas (its largest competitor) was saying the other, and instead of acting in what was demonstrably the national interest, it dithered endlessly whilst being fed nonsense from Qantas – which succeeded in kneecapping its biggest competitor and resulted in the renationalisation. The story of rail policy equally so. However, abolishing the funder-provider split between Transit and Transfund capped off it all for roads.
How else would one expect an organisation with its hands on a multi billion dollar hypothecated funding source to act when it also is responsible for a major transport network?
The Nats are playing the old game as things were before the late 1980s reforms of land transport funding, because that’s the system Labour set up.
I don’t like it, but it is a bit rich for anyone from the left to damn the politicisation of land transport funding when, in fact, it was their lot that destroyed an arms-length fairly objective de-politicised system in the first place.
That’s almost complete “nonsense” Liberty. Advocating against a transport project because of perceived wider issues (as you say the Greens did here) is nowhere near in the same category as the RoNS. The latter involve hand-picking billions of dollars worth of projects, which are subsequently given their own funding stream and accelerated ahead of any other element of the transport scheme for the next decade (!?!). The RonS now make up approximately 3/4s of the land transport budget. The Greens slowing one particular ($100 million???) project down because they have concerns with it are in a completely different league to the same scale of political interference that is the RoNS.
You’re also very selective with the information you provide to support Labour’s so-called politicisation. You fail to mention that the momentum to drop the BCR criteria below 4 came from a number of different organisations aside from Labour, including the OECD and the (more partisan) RTF, AA, Roundtable etc. And please take the strawmen arguments elsewhere – nowhere did I say that National had “a monopoly on land transport politicisation”; I did say that National were prepared to politicise the sector in a way that Labour did not.
That’s not to suggest that the latter always made good decisions: Removing the funder-provider split being an example. But this was recommended by a series of transport sector reviews – I don’t think the political involvement was hugely overt here compared to the RoNs.
Stu,
I think the point isnt that they lowered the BCR, it is that they ‘threw the baby out with the bath water’ by getting rid of the arms length funding model. It is the equivalent of the government deciding that the reserve bank is being too hawkish on inflation, but instead of just rewriting the policy targets agreement they decide that the minister should set interest rates. And then campaigning on low interest rates.
Stu.
The Greens wanted to veto a project, in fact the Greens wanted to veto four projects. Wellington Inner City Bypass, Mt Roskill extension, Penlink and the Waiouru peninsula link. Labour said a blanket no to the second and fourth, and the third was dead in the water anyway because the business case didn’t stack up, and besides Kedgley was most vitriolic and worked up about the WICB (despite it being the smallest of all of them). It’s semantics to claim vetoing projects is different from pushing projects, two sides of the same coin of political interference. Labour essentially picked the projects it wanted advanced as well, specifically Mt Roskill, Manukau extension, CMJ upgrades, Grafton Gully, Esmonde Rd Interchange, Northern Busway, Victoria Park tunnel and the Upper Harbour motorway projects. It was overt. The PM and Judith Tizard were outraged that a bypass for Orewa was ready to go but Auckland’s most congested motorways (CMJ) were some years away from getting fixed. The clear direction was that Auckland congestion needed to be addressed, and to hell with rural highway realignments and the like.
Your naivety around it not being so political is quaint, but I was there. Mark Gosche was pushed to one side as Minister because he wasn’t getting things done. The “Auckland transport project” was a political funding review started by Helen Clark (completely sidestepping Gosche) setting up an unofficial officials group including Jan Wright and David Stubbs to decide what should be done in Auckland. That group decided on a long list of motorway projects and public transport projects to advance and to authorise a study into road pricing. Gosche was replaced with Paul Swain as he was seen as someone who “gets things done”. Subsequently the Auckland, Wellington, Waikato, Bay of Plenty and Canterbury “transport projects” all saw special funds set up using general taxpayers’ money to buy projects for those regions. Auckland got motorways accelerated and a lot of rail upgrades, Wellington got its rail upgrade and new rolling stock, plus some road improvements and ultimately Transmission Gully, Waikato got expressway improvements advanced, Tauranga got the Tauranga HarbourLink road toll free (bribe to Winston for his support) and Canterbury got the Christchurch southern motorway.
Nats had RoNs, Labour ran special little funding streams for preferred regions in partnership with local government. Neither are based on an objective allocation of funding from the NLTF based on Cost Benefit Analysis.
Oh and the “transport sector review” that saw the funder-provider split was basically told the direction that the PM wanted it to head. The last government was sick of Transit and (what had become after Transfund and LTSA were merged) LTNZ having differing views on road projects, and wanted a unified single government view. Given by that time that the Chairs of both Transit and LTNZ were on each others’ boards, it was heading that way. It’s ludicrous to even think that there was some even handed review that was about objectively maximising value for money. Transit was wrapped up into NZTA so that the Minister and PM’s office could tell it what it wanted.
The OECD was irrelevant. The RTF and AA were consulted and simply wanted the BCR threshold lowered and more money spent on roads, they got the latter, but the former didn’t happen – BCR was sidestepped and increasingly ignored. Business Roundtable supported the Better Transport Better Roads proposals advanced by the government before that, and was never listened to by the previous Labour government.
In the 1990s, Maurice Williamson as transport Minister was proud to always say to those lobbying for or against specific roads that it was nothing to do with him – he left such decisions up to Transfund which spent the hypothecated motoring taxes to maximise value for money. Those pushing Transmission Gully were told it was a low value project and funding it meant better projects were bypassed, and those against the Wellington Inner City Bypass were told it was a good value project, but would need to stack up against others when it was ready for a funding decision to be made.
Labour abolished that and National has now run with that system. If Labour had stuck with the previous system and simply increased funding to Transfund, then for National to politicise roads funding it would have had to change the law.
So to claim National has politicised transport funding in a way Labour did not is true in one sense, as the Nats didn’t change the law to allow for politicisation. Labour did.
For shame on Labour for doing so, for shame on the Nats for not reverting to the policy they implemented in the 1990s. Bear in mind the Greens voted all along for Labour’s politicisation and are now complaining that, with the government having changed, it doesn’t like the results of politicised transport funding.
Well boo hoo – governments change in a liberal democracy, and if you deliberately shift a sector from arms-length decision making to political, then you have to accept the cost of that is decisions you don’t like when you’re not in power.
“Labour wanted radical change, the key change was to advance a large number of Auckland motorway projects that had BCRs below 4 and to delay a series of rural projects (Ruby Bay Bypass, ALPURT B2 notably) to enable that.”
Now we have David Shearer touring the regions telling them that he would scrap Auckland motorways and spend the money on minor roading projects in the regions. While he is telling Aucklanders that he will spend the money on rail projects in Auckland. The only principle seems to be “pork”, and he is hoping that people won’t notice that he is offering the same money to different people at the same time.
That’s too simplistic Obi.
Labour’s recent comments on transport has been interesting and slightly concerning. But let’s look at whether they are suggesting:
1. They want to drop P2W to free up enough cash for the CRL in Auckland; and
2. They want to defer or drop other RoNs to free up cash for other projects across the country.
So there claims are actually quite reasonable: You can fund the CRL and spend more on the regions if you’re prepared to take a critical look at the RoNs programme. Whether that’s politics or common sense is not clear, but the key point is that what Labour are suggesting is possible within the context of the NLTF, given you are prepared to sacrifice some of the not so sacred RoNS. And Labour are, so their pledges are achievable.
In the 2005 election Labour campaigned on a roads building platform. The money to build these roads came from the dividends of Meridian Energy therefore paid by electricity consumers.
I wonder whether NZTA’s borrowing will be counted in relation to the government’s desire to get back into surplus?
I am actually on the fence on this issue, I think it would be a good thing in the respect that at the moment NZTA is given a budget to keep to, this is what they have to strive to achieve. ATM if NZTA is looking under budget they will look elsewhere to spend the money. As if they go under budget for the year, the following year their budget is cut down. If NZTA are to borrow their own money, this may stop this inefficient use of money.
The system is set-up so that NZTA either need to meet or go over their allocated budget, this should at least give them some extra responsibility to keep costs down.
One thing that was missed in Gerry’s amendment bill is that is also repeals regional fuel tax provisions. Probably always gonna happen but still it gives the finger to Auckland
They really want to force regional asset sales don’t they.
Treasury looked at WFF and pronounced it affordable at the time it was introduced. Based on taxation income, it was fiscally safe.
Things turned turtle when National kept the policies and cut the taxes. You cannot blame Labour for National’s poor-quality fiscal management, no matter how many times B’linglish and Key implore you to do so.
Salient point.
Matt, you’re dead right that National should have at least started phasing out WFF, although you’ve overlooked the rebalancing between income tax and GST. The overall net reduction in (tax) income due to a variety of factors without curtailing expenditure is the real problem – something no prudent individual would ignore in their own household.
National made the decision to “rebalance” away from income tax and to GST right when it was obvious that the economy was shrinking and people were losing their jobs; many of them courtesy of National’s slash-and-burn approach to the public service. Laying people off when there’s a glut of people looking for jobs is not particularly wise, because of the lost multiplier effect to which their previous salary is not now being subjected. Ultimately that “rebalancing” was a reduction of over $1b in tax income for the first year, and I’m pretty sure they were warned that it would be very unlikely to be the claimed “revenue-neutral” cut precisely because they did it as the economy was shrinking and retail spending was being reduced as people tried to cut debt.
National are entirely to blame for this, and it’s entirely down to their lousy decisions. A sensible person does not cut income while maintaining expenses. A sensible person will not change their income to be reliant on picking summer fruit right at the start of winter. National did both these things.
Stu
You seem to have fogotten Helen’s ON and OFF tactics regarding the Waterview intersection, it being in H1’s electorate.
Thank heavens that project is now ongoing so we can finally finish connecting up the motorways …as envisaged in the 1970’s Auckland tranport plan…
Given the state of our networks now i do support the connection of the Western Ring Route, but just because something was envisaged in the 1970s or indeed some other period is not a sufficient reason to build it now. If that were the case then we’ed be building [and trying to pay for] nuclear power stations, and other schemes including Rapid Rail- Ha! Now there’s a thought.
Actually it was envisaged in the 1956 transport plan… but that certainly isn’t a good reason to do the project in itself. There were plenty of things in that plan that are best forgot.
Damn, there have been some bloody good discussions going on here lately. Thanks guys.