A lot of discussion in parliament yesterday around the news that NZTA will be able to borrow money to a greater extent than it has been able to previously.

It seems that Brownlee is playing down the impact of the proposed change – saying that it’s not much change from the status quo and perhaps even that the change is only related to changing the mechanism for funding toll roads. I’m not quite sure whether that’s correct.

Reading through comments on the earlier post has been quite educational and I think Stu perhaps put it best by saying the following:

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.

If NZTA does have the capacity, through the legislation change, to borrow much much more than it has previously been able to, then I think it puts a greater requirement on ensuring that money gets spent on projects that stack up well. It’s pretty clear that a number of the RoNS projects really don’t fit that criteria. To be fair, until there is a business case for the City Rail Link that finds general agreement on the project’s merit, it probably falls into the same basket. Of course I’m a bit more confident the CRL will meet that grade than projects such as Puhoi-Wellsford and the Wellington Northern Corridor.

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  1. Listening on National Radio this morning they interviewed Minister Brownlee on the Funding and RONs.
    Brownlee made several points, about the borrowing and RONs in the reasonably long interview (which encroached into the 7:30am news by 2 minutes).

    He commented that:
    1. For the RONs (as whole), he is sure they will return a “economic benefit” to NZ “overall”
    2. The B/C ratio is not the only measure of a (RONs) projects worthwhile-ness
    3. The CRL has a huge negative B/C
    4. This is just regularising the same approach other Crown Entities do now (which NZTA doesn’t)

    So what we have here is that collectively the RONs stack up in his view so we have the situation now where all the RONs are lumped together (case of united they stand, divided some fall perhaps?)
    I sense a change of strategy here to now say in effect “you either do all the RONs or do none” – the implication being that clearly do none is not an option, so you have to do them all to get the full benefits. I also sense that there now also the prospect of PPPs for RONs slipping in the side door as well via this legislation.

    Brownlee says “using B/C is not sufficient on it own for the RONs” – and then in the next breath he says that the CRL is hugely expensive with a large negative B/C.

    Unfortunately the interviewer didn’t pick up on that point and come back to it (basically Brownlee threw that in to distract the questioner who didn’t take him up on it).

    In which case the question could have been asked, if (wider) economic benefits are considered so important for the RONs why are you ignoring them for the CRL?

    The question was asked about how can NZTA borrow when it can’t predict its revenue streams accurately due to uncertainties (such as oil prices, falling traffic levels, flat economy, growth in fuel efficient transport).

    Brownlee tried to cover that by saying that building efficient roads as the NZTA is doing, is in effect doing itself out of revenue. (so thats why they need to borrow or is it for other reasons?)

    To draw a parallel with the ACC situation when the same government hiked the ACC fees.to cover the cost of future claims (so called “pre funding”).

    We have the ACC saying you have to “pay as you go” but also pre-fund all the future costs now, and then we have the NZTA being told they don’t need to “pay as they go” and they can borrow and hope (we can pay it back from uncertain income streams).

    So Ministers which approach is it that is appropriate? The ACC approach or the NZTA current approach?

    1. “So Ministers which approach is it that is appropriate? The ACC approach or the NZTA current approach?”

      They’re not the same situation. Future fuel tax revenue may be uncertain, but you can have a reasonably accurate go at estimating it and it is certainly going to be non-zero. Similarly, the ticket revenue from a rail tunnel is uncertain and will vary from year to year, but it will also be non-zero. Both are revenue earning capital assets, even if the revenue for the road is indirect. On the other hand, an accident is all cost. An accident isn’t an asset.

      1. Errr? ACC ‘income’ is even more predictable- the gov just sets it. Accidents are not assets, agreed, but they are a cost and how we decide to meet that cost matters hugely. Current system about the cheapest in the world, but of course these ideologs want to add profit taking to that.

        1. You’re describing a Ponzi scheme. If every year ACC takes in, say, $1billion worth of levies but incurs a liability of $2billion worth of future accident liabilities then you could try and fund the future liabilities out of future income. But eventually future people aren’t going to be able to pay enough to cover the liabilities incurred in the past. Besides the fact that it isn’t sustainable in the long term, it’s also unfair to expect future generations to have to pay for our accidents.

          1. Obi – “If every year ACC takes in, say, $1billion worth of levies but incurs a liability of $2billion worth of future accident liabilities”

            But does ACC actually have that problem and did it ever have that problem?

            Nick Smith said so and promptly hiked the revenue via ACC charges when he minister..

            Then a year or so later they suddenly discovered that “Oops we over pre-funded our future liabilities”, so the levies went back down.(a bit).
            Basically as I see it the Government manufactured a “crisis” to soften us up to flog off ACC as a bad risk ala KiwiRail.so we’d all be glad we sold off that turkey.
            And if it was such a turkey how come the money men were lining up to buy it then?

            Of course, if you look at all insurance schemes they actually rely on being able to cover their losses incurred in any one period by future income from later years.
            Yes they may reinsure their risk with other parties, but the person who takes on that reinsured risk be that Swiss R, Lloyds Names or whatever, are betting their “current” farm against future income from those future premiums.

            However, my point is the Government here is trying to have it both ways – saying you must prefund and also that you can borrow and hope.

            And as for Patricks comment on spending the money on Motorways. These are “assets” only in the way that they enable economic activity. You can’t dig up a motorway and sell it to the Chinese like you can do the Gold in Waihi mine can you (well maybe, this Government is working a plan doing that who knows).

            But the “double think” at play between the NZTA funding and the ACC funding models is the major disconnect here.

          2. “And if it was such a turkey how come the money men were lining up to buy it then?”

            No one has ever proposed selling ACC. Allowing other insurers to compete against a government-owned ACC is completely different.

          3. “No one has ever proposed selling ACC. Allowing other insurers to compete against a government-owned ACC is completely different.”

            The previous National Government of the 90s/early 2000’s proposed privatising a good chunk of ACC, and the current one also campaigned on allowing competition for some of the various “accounts” of ACC..

            But in what way is selling ACC outright, and tearing to pieces one limb at a time, essentially different?

            The Woodhouse commission which is what the ACC model came from was always intended to work as a “sole provider” model, not as a “refuge of last resort”.

            To that end that is why it was set up as a Universal provider of coverage, with no fault provisions. The “splitting up” the various areas of ACC into earners, motor vehicle etc “silos” was never intended and is a political and accounting convenience.

            Yes, many of the Governments since have tinkered with it (more National than Labour if I recall) but thats immaterial, it has remained a sole provider with the single exception of select large scale employers being able self manage. Allowing competition to “cherry pick” the lucrative parts of ACC and leaving the unpalatable basket cases behind is not what ACC shoule be or was about. Doing that in the end amounts to selling it off. [or at least, in current parlance “allowing mixed model ownership”].

            And yes, in the 90s the money men were lining up to get pieces of ACC, not so much this time as they got their fingers burnt last time when Labour changed the rules.

            Despite its faults, ACC is overall and extremely efficient scheme when everything is taken into account.

            As a country it is one of our true hidden gems and give NZ competitive advantages with other OECD (1st world) countries – but its one that economists (and politiicans) the world over seem to either overlook or pour scorn on – yet secretly admire and most of those economists and politicians from outside NZ wish they had that sort of thing back home.

          4. “The previous National Government of the 90s/early 2000′s proposed privatising a good chunk of ACC”

            No. There was no National government in the early 2000s. Labour were in government from 1999 to 2008.

            “Doing that in the end amounts to selling it off. [or at least, in current parlance “allowing mixed model ownership”].”

            No. ACC is not part of the mixed ownership model. Competition does not equal ownership. Your right to build a house does not mean that the government has sold Housing NZ.

            “And yes, in the 90s the money men were lining up to get pieces of ACC, not so much this time as they got their fingers burnt last time when Labour changed the rules.”

            No. Insurers were lining up to compete in the accident insurance market. But no part of ACC was for sale and ACC would still operate in the accident insurance market. Your right to bank with ANZ does not mean the government has sold Kiwibank.

    2. The CRL has a break-even BCR at absolute worst. I’ve never seen a sub-1 BCR for the CRL, and IIRC the lowest I have seen was 1.1. That compares with Puford’s BCR being as low as 0.3 depending on the method of calculation.

      1. From http://www.stuff.co.nz/national/politics/5079102/Auckland-rail-loop-benefits-don-t-stack-up-report :

        “That the re-calculated BCR consistent with the NZTA Economic Evaluation Manual used for roading projects was 0.3; with the additional wider economic benefits taking it to 0.4”

        I’m not commenting on the BCR itself because we’ve done it to death already and I don’t think BCRs are particularly useful except to compare and prioritise projects. But the 0.3-0.4 figure was widely reported at the time and is about the same as the BCR for Puhoi to Wellsford.

  2. I heard Phil Twyford yesterday on morning report making comparisons between the RONS and the Think Big projects under Muldoon (which apparently also often had marginal CBAs). I think that is quite a clever strategy as it may resonate well with middle NZ bayboomers etc.

    1. The trouble with that argument is that Think Big (which was pretty much a complete disaster) was predicated on oil shortages and continued high oil prices. It was the early-80s equivalent of peak oil. The people predicting that road improvements won’t be necessary because oil will be unaffordable in the future and that we need to build huge public transport projects instead are the Muldoonists of our generation. And they’re wrong for the same reason he was.

      Remember that electrification of the railway between Hamilton and Palmerston North was one of the Think Big projects. I vaguely recall that it was going to ensure that rail freight was viable. Which is a mistake every government seems to make, including this one who thinks that one final $3billion investment program will make rail freight sustainable. Governments have been bailing out rail freight in NZ for well over 100 years and it is always portrayed as an investment. It isn’t.

      1. Obi it wasn’t peak oil, which is a geological limit, but to build resilience against a political constraint in supply [OPEC]. Big difference; the later is more likely to be reversed, because it’s actually possible.

      2. Obi, it is unreasonable to expect our railways to generate a profit when they are in competition with the highly unprofitable state highway system. No one expects that our roads generate money, instead the government pays for a ‘public good’. In the same respect, why do we neglect our railways on the pre use that they do not generate money?

        1. The state highways do generate a surplus as the revenue generated from their use is more than enough to maintain the capital assets at a steady state.

          So the state highways do generate a “profit” in the form of NLTF revenue recycled into the wider land transport system.

          The railways have not generated sufficient revenue to keep all of its capital assets in a steady state for decades, let alone improvements.

          Bear in mind also that one of the key reasons for the Better Transport Better Roads proposals of the 1990s was to put roads on the same footing as rail by demanding they make a transparent return on capital, depreciate their assets, borrow for capital improvements and develop capital projects on the basis of affordability based on revenues. It would also have made transparent the role of local roads in providing access and allowed levies to be charged to reflect this, given volumes of traffic on many rural roads are insufficient to generate revenue to cover fixed costs (although aren’t far off covering marginal costs).

          1. “The state highways do generate a surplus as the revenue generated from their use is more than enough to maintain the capital assets at a steady state.”
            Is that a true statement? Are you able to refer us to a document that supports that claim? How are you able to differentiate between revenue ”generated” by the use of local roads and that ”generated” by the use of state highways?

          2. Let’s see. On the one hand there is the roading system, the construction and maintenance of which is in part paid for by fuel tax and road user charges. This is an accountancy fact. Very good; nothing more or less than describing a method of funding; this fact says absolutely nothing about true cost or true value.

            Let’s now look at it in terms of wider costs.

            The [entirely imported] fuel and vehicles to actually run on this system is to be paid for separately and are never counted as any kind of collective cost when evaluating the overall value of this mode. Oh yes then there’s the, how many is it now?, 300 odd people this network kills every year directly, how many maimed, families ripped apart [just imagine if the airline industry did this routinely]. Oh and the deaths and lowered quality of life from air pollution. Not to mention the auto-promoted obesity epidemic. The dedication of our law enforcement, emergency, and medical services to patching up the vast fallout from the great grinding machine [including ACC liabilities of course]. Then there is the loss of productive and valuable land to host the infrastructure, oh don’t forget parking; a huge tax on everything; building costs, land loss. The insurance of all these precious but deadly and fragile devices that we hurtle around at 100 kph…. I could go on. Shitty and unpleasant car burdened urban places….

            Now i am not proposing that we stop driving tomorrow, it’s damn useful, but it isn’t the only possible option everywhere, or even close to being the most desirable one often. But I am proposing that we get a little more sophisticated in our evaluation of what it is better to invest in than simply pointing out that we have decided to dedicate a tax to build more roads to try to claim that this is without cost. To read the world like that is to be reductive to the point of autism.

            The RoNS are an extreme version of most of NZTA’s programme: A vast promotion and encouragement of auto-dependency. What we build we have to use, if we only build one system we will have no choice.

            This is foolish, we are already an extremely auto-dependent nation. We import over 12 billion dollars of oil products every year and waste much of this through our failure to invest in more efficient freight and movement options. Then we have to listen to boneheads that say we can’t afford better systems while hurling absolute fortunes to entrap us further in this impoverishing mode. And their best argument? It’s free! Look: it ‘generates a surplus’.

            This is just sophistry; slicing the real world into little bits like chopping up a mostly rotten salami to find the one bit that looks like it mightn’t kill us…

          3. Patrick, are you aware that people are not forced to buy or operate vehicles on the road network? They do it of their own free will.

          4. Though to be fair Swan, for many people there isn’t much of an alternative. If the choice is car or be treated like a second class citizen, then often surprisingly enough people will choose car – even if they have to pay through their nose for the “privilege”.

          5. Haha Swan straight to the point: yes of course you don’t – if you live in say London or Melbourne or a whole lot of other cities with actual functioning alternatives to driving. For most people, most of the time in Auckland there is currently no alternative to driving.

      3. “instead the government pays for a ‘public good’”

        I have no problem with subsidies for urban passenger rail, which address an externality and do provide a public good. I just can’t see the public good angle in subsidising rail freight, which is an indirect subsidy to the forestry, dairy, and coal industries. Or in subsidising long distance passenger rail when coaches are more efficient and cheaper, and where most of the users are tourists. Including a lot from overseas. Maybe you can see the public good aspect of taxing NZers so that foreigners can include a scenic rail trip on their holiday, but I don’t get it.

  3. Gerry, which really is the bigger gamble to invest in in terms of the economic benefit: the northland highway or the CRL link? If there was such economic potential up north don’t you think the business activity would already be occurring? Think about remote mining operations?

    A fancy new highway isn’t going to mean a rosy medium-term economic turn-around up north. The poverty issues are caused by a number of factors. Please Gerry, do further assessment of the strategy, or, maybe just give a few actual examples of how the highway will unlock economic potential.
    At least with Think-Big we got some plants and industries, many of which have contributed well to GDP.

    1. JeffT,
      I’ve thought about this this morning as well, and you know I reckon the Government wants the PuFord RONS so it can get Auckland Council to move the ports to NorthPort, then as the rail(s) aren’t up to the job, a constant stream of trucks will have to travel to and from NorthPort and Auckland to deliver the containers to/from Auckland.

      And then The Government will force the AC to sell off the land the port was on for hi-rise Business/Apartment developments – requiring the money raised be used to pay for the CRL.

      Crazy? sure – but in their mind all they can think of is all the revenue and “economic activity” that will generate with Road user charges, fuel taxes etc etc and will kill 2 birds at once.

      Get the RONs sorted, kick start the WEBs for the PuFord RONs (whats the singular of a RONs – a RONs too?), get the CRL paid for without a cent of Government money and then deliver a load of new tax payers into Auckland City/CBD in the new developments they force.

      The only downsides I can see here is the massively increased greenhouse gases from all those trucks, the noise and extra traffic and the cost of the truck trip from NorthPort to Auckland may well be more than the seafreight from NorthPort to/from wherever.

      But then all those long haul truck drivers need to eat and fill up the trucks so fuel stop owners will do a roaring trade filling up the truck and drivers and PuFord will be justified on that basis of the traffic.

      So the “WEBS” for that plan will easily overcome any B/C ratios you care to come up with.

      1. It’s a clever, diabolical plan Greg. I’m just not sure the current government is clever enough to think of this. I also am not sure they would build the CRL even if they freed funds up to do so.

        I am beginning to wonder more on the impact the seat of government has on development in other cities, regions.
        Would London have such a complex underground system if, for e.g; Leeds was the capital? What would Auckland look like today if it was our nations capital?

        The movement of the port would certainly create some changes to transport activity. I would like to see the ports stay in Auckland but perhaps not in the position where they monopolise our harbour.

  4. Politically this is a pretty straightforward attempt from a tubby roading lobby Balrog to reach out from the looming political obscurity of 2014 and drag any future governments ability to change transport spending priorities down into the abyss with him by crippling the NZTA with debt.

  5. Oh dear Gerry, what the fish are you talking about?

    Have to point out some blinding errors in his comments:
    1. Promoting the RoNs as a “package” is like subsuming NZ’s economic performance within Australia and concluding that NZ is doing well. More succinctly, he’s sprouting absolute economic bollox. The reality is that the individial RoNs need to stand on their own individual merits; they are hundreds of kms apart and in no way form a package of improvements that means that their economic benefits/costs can be combined together.
    2. When you’re promoting projects on the grounds of their economic benefits I would have thought that the BCR was the most important measure of success? Indeed, if the BCR is not good does not that put lie to the fact that the projects themselves deliver economic benefits?
    3. A negative BCR means that the net benefits are negative, e.g. benefits = -3 and costs = +10 then BCR = -3/+10 = -0.3. The CRL is not and never has been in this category. What I think he means (who really knows?) is that the benefits are less than the costs, e.g. benefits = +3 and costs = +10 then BCR = +0.3. The CRL is possibly in that category, depending on who’s business case you choose to believe. But it’s incorrect to suggest that the CRL has a negative BCR.
    4. Not informed enough to comment.

    So he’s definitely wrong on #1 and #3 while on pretty shaky ground with #2.

  6. I suspect Gerry is just trying to prove that simple woodwork teacher that he is, he can still read Steven’s prompt sheets just like the rest of them; and that you don’t have to be fiscally literate to be a National party cabinet minister.

  7. One of the tricks of the current government is to blur the meaning between the financial and the economic. They are in no way interchangeable, the former being a subset of the later, a much narrower concept that is about money only, while the later also includes costs and values beyond any balance sheet. Poor economists spend years trying to turn these effects into numbers, and often [It seems from my non-economist perspective] simply ignore things that are too hard to quantify. Hey Ho; probably this is why it is known as the ‘dismal science’. Finance is really just a fancy name for accountancy.

    A favourite technique of the neoliberal is to insist on defining away all economic benefits that are not financial when discussing projects they don’t like [‘bloody trains are uneconomic: they don’t pay for themselves’]. As well, of course of doing its corollary; defining away all non-balance sheet costs for projects they favour [eg pollution, accidents, ugliness, community ruining, etc factors that are not or not properly considered in highway analyses].

    So I would be really pleased if at least if everyone on this site could not fall into that trap too. Let’s try to be clear if we are making an Economic OR a Financial argument. Thank-you.

    1. Although difficult to do at times because, as you’ve said Patrick, one is a subset of the other.

      Listening to question time lately, I’m getting the impression that the government are trying to shift away from their focus on financial bcr’s to trying to convince on wider economic benefits. But I have yet to hear any specific examples from Mr Brownlee of these.

      They are getting a good hammering on their proposed motorways in question time and I’m hoping it’s starting to get to them. In particular I think Labour have decided to really go for Joyce this week, nailing him every time he adds his extra snide remarks. I try to stay apolitical, but any party that opposes rail infrastructure must not be in power.

  8. Unfortunately you don’t need to be fiscally literate to be a journalist or news editor in this country either. Hence any government can pretty much avoid getting caught out using lies or damned lies by just throwing about lots of statictics. If you don’t want the numbers published just provide the raw data (0.1 percentage point change in GDP), if you do want the number published provide a simple number (will reduce GDP by $3bn dollars).

  9. “Unfortunately you don’t need to be fiscally literate to be a journalist or news editor in this country either. Hence any government can pretty much avoid getting caught out using lies or damned lies by just throwing about lots of statictics.”

    Agreed. And this is exacerbated by the mainstream media being the average Joe’s main source of information, which ensures the vast majority of the population is misinformed on a whole range of subjects. That’s why I visit blogs like this. If only mainstream media didn’t operate to commercial imperatives and was more concerned with seeking out the truth and promoting better understanding of topics that effect us greatly. Aaaaanyway, rant over, ha.

  10. *fiscally*? means of or relating to government finances, esp. tax revenues, except in USA and Canada where it is used interchangeably with *financially*. It is easy to blur the line between financial and economic when most economists speak of the economy in dollars, as though economics is simply an accounting excercise.

  11. In all of this it’s striking that risk doesn’t feature as part, or alongside, a BCR evaluation. For instance what is the risk that CrL patronage will be less than predicted? More? Fuel prices? Inherently some projects are more risky than others if assumptions are wrong, but you wouldn’t know by looking at a single BCR figure.

  12. Given that finally borrowing will be allowed for state highway assets it would be a great leap forward to treat the entire road network on the same accounting basis as other infrastructure assets (rail as well), which is to have them treated explicitly as capital assets, have maintenance treated as capital, depreciate capital values and to set RUC based not on future expenditure on a PAYGO basis but on the current consumption of highway capital. Then it will become transparently clear how much adding substantial new capital to the network should cost future generations.

    The RoNS are huge capital projects which should be spread over the depreciated lives of those assets. For some it will be around 40 years, for tunnels it should be more like 90 years (relatively low maintenance to retain capital value), it should treat the cost of the land under them appropriately and the land under new works should be rateable if the land used was rateable before.

    There is a vast amount that can and should be done to stop treating roads as special, so that investment in highways can be more closely aligned to electricity, telecommunications and water infrastructure. Then it will make the cross-subsidies within the road system clearer and fair comparisons between road and rail easier.

  13. So Liberty you hate how Labour funded a few hundred million dollar projects, but no problem with 7 RONS, hosting costing $1 Billion plus?
    Thats the real issue, the Labour projects could easily be tuned by switching priorities, but the RONS are often costing 2/3 of yearly budget for one!
    There are also serious construction industry capacity and hence inflation issues with these projects too, and extra borrowing to push them into a shorter timeframe will make this much worse. Watch new subdivision costs head north as capacity is sucked up by the RONS.

    1. Luke C: No. When did I say I had no problem with the RoNS? In fact I called it Muldoonist pork when it was first announced. Why would you assume then are only two points of view both based on pouring vast amounts of money down uneconomic holes (the only issue being what it is poured down)?


      The fact is Labour wrecked the funding system based on economic efficiency, with full support of the Greens, and National has now proceeded to use it in exactly the way officials warned at the time (change of government change of political priorities).

      The Greens are reaping the consequences of what they sowed, because they wanted to pick and choose very low value rail projects (e.g. Marsden Point) to fund over high value road projects – what a surprise when the same system means very low value road projects are picked over public transport projects.

      Neither were possible before.

  14. Patrick: You said “On the one hand there is the roading system, the construction and maintenance of which is in part paid for by fuel tax and road user charges. This is an accountancy fact. Very good; nothing more or less than describing a method of funding; this fact says absolutely nothing about true cost or true value.”

    The state highway system is 100% funded from FED and RUC, local roads 50% on average.
    It does describe more than a method of funding, because it is a proxy for user pays. Enough revenue is generated from the use of all of these networks to maintain and improve them, significantly and to pay around half of the cost of subsidising urban public transport.

    To deny that says anything about value is to hold your hands over your eyes and pretend this inconvenient fact doesn’t mean anything. It means that road users are, on average, willing to pay for the network they use, and some. Indeed, this is the case in many countries.

    Given the rail network issues are about infrastructure costs and the rail network doesn’t come close to recovering them (although I believe it could on the parts of the network that carry decent amounts of freight), this is an issue that shouldn’t be evaded.

    Let’s drop the emotive words “true cost” or “true value” because that’s just inviting subjectivism. Costs can be identified quite transparently, and there has been extensive work done in New Zealand on this (the Surface Transport Costs and Charges Study and the Land Transport Pricing Study before it).

    These costs are infrastructure costs (mentioned) and externalities. You’ve attempted to discuss externalities, but like more than a few rail advocates you’ve gone down the path of hyperbole and “taking sides”, which is not based on reason or evidence.

    You mention the cost of fuel and vehicles (whether they are imported or not is neither here nor there, because if importing goods and services is a public policy issue then the appropriate response is trade policy), yet these costs are entirely internalised. New Zealanders over some generations have chosen in increasing numbers to purchase motor vehicles and use them, they chose them over many alternatives, chose them over a couple of generations of trams, chosen them over railways (starting in the 1930s when rural stations and some rural branch lines started losing passenger services). Whether people buy certain consumer goods or not is not a public policy issue, unless you want to engage in some serious central planning about people wasting their own money on things you don’t think they should buy – and the doors open wide on vast amounts of discretionary expenditure and invite policy responses that are authoritarian in their reach.

    On safety there is a point, noting that the network doesn’t “kill” people, most fatalities are driver error and the Surface Transport Costs and Charges study even went to the point of distinguishing fatalities based on fault by vehicle type. Safety is an issue primarily because millions of private individuals drive vehicles on a common network that is shared with a range of users of different vulnerabilities. However, the costs of road accidents are largely internalised. ACC covers the costs of such accidents to the person (and if that is inadequate then you should open up workplace accidents as well), and property damage is internalised by insurance. There are wider costs to such accidents, but these are not peculiar to roads. Yes airlines are more tightly regulated, but then most road accidents are not fatal or even cause injury, unlike aviation. I believe rail safety is over-regulated in NZ. Bear in mind that when airlines or railways have accidents, it almost always is about a company providing a service killing people paying for it. On the roads it is individuals driving their own vehicles making mistakes. If airlines routinely killed people they’d be out of business, but most people most of the time perceive the risks of driving and do so anyway, quite simply because on a per vehicle km basis it is remarkably safe and is getting safer on average.

    On air pollution there is a point too, where people are exposed to it, and the most effective response to date has been improved fuel quality standards (cutting particulates by about 90%) and cleaner engines. Outside Auckland, air pollution issues in New Zealand come from households in winter. Rail has a role to play in having cleaner locomotives (the current lot are filthier than any modern trucks).

    The “auto-promoted obesity epidemic” sounds awful, but besides the point that obesity isn’t a disease that you can catch (so the term “epidemic” is a misnomer), the causes of this are multi-faceted. Yet shifting freight on marginal branch lines wont do anything about that. More walking and cycling will help, and there has rightfully been a decent push for that in recent years. However, there are lot of people who drive who aren’t obese and quite a few who don’t drive who are. The bigger link to obesity is that food is cheaper today than it ever was, by and large, and more people are adopting sedentary lifestyles because employment is less physical and more and more recreation involves physical inactivity. Blame microchips for obesity if you like!

    By the way, the Police are paid from FED, RUC and MVR from the NLTF for their traffic enforcement activities, so that is internalised by being paid for by road users.

    You have a valid point about land being lost, because the capital value of land under roads should be recognised in roading accounts and a return on that land should be expected to be charged on it. For state highways that can make some sense (and of course rail is the same, since it is not expected to make a return on that land), but for local roads it falls apart because the value of the adjacent land is based on having access, so the road itself grants value to that land. Landlocked land has a low value. Very happy to have the issues around land and roads to be sorted out, as was the Land Transport Pricing Study, although it concluded that there are many difficulties.

    It’s easy to take your quip “Now i am not proposing that we stop driving tomorrow, it’s damn useful,” lightly, but you completely fail to acknowledge that for many people having and using a car isn’t a burden, but a delight. People get a great deal of enjoyment from them, and societies where car use is banned or severely regulated are fairly joyless. What greater symbolic step forward for Saudi women than to be allowed to drive? The constant emotive claim of “auto-dependency” is designed to imply people drive because they are like alcoholics, yet you wouldn’t say people without cars are “bus dependent” or “train dependent” or even think that is bad. People like being able to drive places, all that matters beyond that is that they pay for the cost of what they use – like with other transport modes, like with other infrastructure (electricity, water, telecommunications). The key is whether the externalities they create are being addressed appropriately.

    You claim you want a wider assessment of what to invest in. Look at the Economic Evaluation Manual, it measures externalities, impacts on safety, impacts on emissions and has scope for non-quantifiable externalities. None of this is new, what’s relatively new is that the last government abolished treated BCR as the primary rationing measure under the NLTP and this government has run with that as well.

    RUC is set as a user charge specifically to reflect the costs and benefits the vehicles that pay it impose upon the transport system, so it’s rather logical to expect RUC payers to expect what they pay to be used on the network they use, or to deliver them benefits. FED is only paid on road use, petrol used off road is not liable for fuel tax (and refunds can be due for those who pay it). So they are user charges for road use legally hypothecated to the NLTF – not through the Budget, not through Treasury, but by legislation.

    I’m not an advocate of the RoNS concept, although I think some elements are high value, others are not (and I sympathise with opposition to the Puhoi-Wellsford motorway proposal on economic grounds), but then I’ve always advocated going back to the previous funding allocation system that treated virtually all capital projects on the same basis by Transfund. Road users’ money should be spent efficiently, not on political totems.

    My argument is fairly clear. People choose to use the roads, they pay for this (not enough in some cases, too much in others) and so spending money on the land transport network to deliver the biggest net gain (given BCR measures monetised benefits from saving time, fuel, other operating costs, emissions, fatalities and injuries) makes some sense in the absence of full network road pricing and commercial provision of roads.

    Your argument appears to be that pouring some of that money into rail projects that don’t have good BCRs (until you start including the same WEBs used to justify RoNS) will save the nation from “auto dependency”, which isn’t credible. You claim freight movements aren’t as efficient as they could be, yet those freight customers have far greater incentives to deliver efficiency than you do. Are you working for a freight forwarding company, what do you know about the cost of shifting freight? Do you think companies stopped using rail even though it was the most efficient way of moving their goods, or maybe you simply wont accept that beyond bulk goods and long distance containerised freight, rail is not competitive with other modes in New Zealand. The Napier-Gisborne line can’t carry enough freight to make it viable because that freight doesn’t exist, the bulk goods are almost entirely located too far from the railway and going too short a distance for the fuel advantage to offset the labour, capital and fuel costs of double handling, and capital costs of the network, and the general goods are not in sufficient volumes and going to too many destinations to be efficient shifted by rail.

    For people movements (given you go on about “auto dependency”, outside the main centres there is barely enough volume for bus services let alone rail. Intercity rail is lost to cars because of the volumes and flexibility of access either end, and flights for speed. In Auckland and Wellington passenger rail is useful, particularly Wellington, but the main externality issue in both cities – congestion – wont be solved without road pricing (and that will make a positive difference to rail’s viability as well).

    You underlying hypothesis is that rail can make a big difference, it’s difficult to see how that is true on any significant scale, especially when most road freight and passenger movements can’t realistically use rail because of geography, distance and volume. You claim a lot of fuel is wasted. How do you change that and how are people wasting it, and would saving that pay for what you want to do to change that?

    Other forms of infrastructure don’t engage in mass state cross subsidisation of competitors (e.g. electricity of gas or vice versa, telecommunications networks), so the case for road users to do so beyond roads needs to be made. It is not the norm in the economy anymore. Every sector is meant to stand on its own.

    The case for road users subsidising urban public transport is clear, because it is a second best alternative to road pricing, as the lack of it means urban road use is underpriced. The case for road users subsidising rail freight is far less clear, but in circumstances if roads are underpriced for freight (given the geographical averaging of the RUC system at present) and rail can reduce negative externalities (and sea freight can’t do so better), it is efficient to do so.

    The case studies undertaken for freight in the Surface Transport Costs and Charges study are telling on this front (sadly the full report is no longer available on the MoT website).

    1. You raise a number of valid points Liberty and I think you’ll find that you are closer to the position of a number of bloggers on this site than, for example, the current roading policy of the National Party.

      The issue comes down to marginal costs in my opinion. We already have quite a lot of transport network, but we have growing demand. Some bits of the transport network have a lot of capacity left in them while other bits of that network don’t have the same capacity. Obviously one way of resolving that issue is to price the network better – and yet again you will find that a number of people support that approach – but for a variety of reasons very few (if any) places in the world have got to the point of pricing transport properly. Plus I tend to think of that as a very “micro-economic” approach, whereas under-pricing transport may have important macro-economic benefits – particularly in relation to things like agglomeration, uneven labour markets, tax wedges and so forth.

      While people may choose to pay for the roads, the marginal cost of adding road capacity is prohibitive in many cases. Or it has adverse effects which aren’t properly captured in the BCR process (for example, the Basin Reserve flyover announced today may well depress property values in the area for decades to come but that won’t be captured as a disbenefit). Because marginal cost rises so quickly as transport capacity runs out, we need to find ways of getting the most from the network we have. That means things like subsidising public transport or building the City Rail Link so the latent capacity of the entire rail network can be unlocked – rather than having to duplicate that capacity some other way.

      Another good example is the Northern Busway: paid for by road users and subsidised on an ongoing basis – but it probably has delayed the need for another harbour crossing by 20 years – did the benefit of not having to spend $5 billion on another crossing ever get taken into account in the cost-benefit analysis for the busway? I don’t think so.

      A pure financial/accounting approach to transport ignores these issues. But that approach is pretty nonsensical as I think Patrick has said in the past, it’s rather like only being able to spend alcohol taxes on building more pubs.

      In short, as I said at the beginning I think we agree on many matters – but you just take the ideological purity to the extreme while ignoring issues like marginal costs and benefits/disbenefits which are ignored by the BCR process.

  15. It would be interesting to find out how much RUC and tax from truckies (after all even the one man band will be operating at least as a sole trader but more likely a LLC) is actually left over in the big pot once all their tax deductions (fuel, RUC, depreciation etc) are allowed for each financial year?

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