More on the Budget

This is a more comprehensive post looking at the outcome of yesterday’s budget.

As mentioned briefly yesterday, when it comes to transport the big news of the budget was that government providing $375 million in an interest free loan towards $800 million of additional motorway projects that they had announced last year. The $800 million is made up of the projects below.

The decision to do this along with the way it’s been done raises a lot of questions that I will try to work though below.

The projects will address congestion in our largest city, capitalise on the benefits of major roading projects already under way, such as the Western Ring Route, and improve access to Auckland International Airport.

“No Government has invested so heavily in transport infrastructure across all transport modes,” Mr Brownlee says.

“But with freight demand forecast to grow by around 50 per cent across the country in the next 30 years, and by almost 80 per cent in Auckland, and with a growing population, we’ve decided to bring a number of important projects forward.”

First of all since when have any projects like these ever ended up solving congestion for more than a couple of years at best. All they will do is encourage people to drive more either by taking additional trips, shifting trips closer to the peak or potentially even replacing trips currently made using public transport. As for the freight demand, while it is predicted to grow it’s not yet clear that it will actually happen. The recent Freight Demand Study released by the Ministry of Transport shows that freight volumes have been flat since 2006/07.

“Some of these projects were up to a decade from starting, but we’ve decided they simply must begin sooner to give Auckland the best opportunity of moving people and goods around the region,” Mr Brownlee says.

The comment saying that they’ve decided to bring the projects forward combined with the statement above show that despite what the government like to claim, they are really just picking projects they want to build. Alternatively they could just as easily have provided money to help kick start the CRL or build the infrastructure needed to make sure the new bus network can really hit the ground running. As for paying for it:

The $375 million will be transferred to NZTA as an interest-free loan, to be repaid to the Crown by funding currently allocated to these projects in the National Land Transport Fund up to 2026/27.

The Government is also announcing today $32.7 million of new operating funding over the next four years to cover the debt financing cost to the Crown of the interest-free loan.

I think the decision to use debt to pay for these projects raises a lot of questions.

Why is the loan interest free. The closest comparison we have is with the funding package to buy the Auckland’s new electric trains. In that the government have provided the council with an interest only loan and the council pay the interest payments but don’t actually get to pay down the capital value till the loan term expires in 35 years. By comparison this loan is interest free and will be paid off using funds from the NLTF. That will inevitably have an impact on what else can be funded through the NLTF and it’s likely to mean other projects elsewhere won’t be able to be funded as a result. This is a similar situation to what is planned to happen with the PPP being let for Transmission Gully and being proposed for Puhoi to Warkworth. Speaking of PPPs, it once again raises the question of why even bother using them instead of using a facility like being proposed for these Auckland Projects. If we’re going to be using debt to fund something then we might as well use government debt rather than pay the commercial rates of private consortium.

On top of that $800 million the government also confirmed some small amounts of money for the local road projects they were supporting.

• Further investigations to determine the preferred scope of the East-West Link over 2014/15 ($10 million).
• Progression of the Panmure to Pakuranga phase of the Auckland Manukau Eastern Transport Initiative (AMETI) over 2014/15 ($5 million).

The AMETI part mentioned will likely be to help fund the Notice of Requirement which AT are planning on lodging later this year however it’s the East-West Link that’s interesting. Why are we still trying to determine the scope of the project. That is work that was said to have been done already or is the government re-litigating it after complaints from business owners who want a full scale motorway?

All up with the motorway based spend up I get the feeling that this cartoon I posted the other day is only getting more and more relevant.

The second big announcement was an additional $198 million for Kiwirail towards it’s turnaround plan. It will be used for

• Infrastructure renewals and upgrades.
• New wagons and refurbishment of existing wagons and locomotives.
• IT systems.
• Earthquake remediation projects and other safety works.

This is quite a positive sign as it puts the government’s investment well above what they said they would do a few years ago when the turnaround plan was launched. It suggests that perhaps the government are getting more confident about the future of Kiwirail which is good news.

Looking at the more detailed budget documents for the transport section shows a few other key points, here’s the overview.

Road

The largest element of the Vote is the funding for roading ($3,873 million or 86% of the total Vote).

This is primarily the funding for the National Land Transport Programme which is funded from road tax revenue collected by the Crown ($2,850 million or 63% of the Vote).

$1,012 million of the balance (22%) relates to loans from the Crown:

• $750 million for cash flow management. This appropriation does not take account of any repayments made and the facility may not exceed $250 million at any one time
• $107 million to advance the construction of the Tauranga Eastern Link
• $100 million to rebuild earthquake damaged roads in Christchurch
• $55 million for projects in the Auckland Transport Package.

Rail

Funding for Rail makes up 11% of the Vote – $511 million, mainly:

• $198 million for the KiwiRail Turnaround Plan, the aim of which is put the freight business on a commercially viable footing
• $192 million for a loan to the Auckland Council to assist with the funding of the Electric Multiple Unit package
• $90 million for a grant to the Auckland Council to assist with the funding of the Electric Multiple Unit package
• $16 million for metro rail projects in Wellington.

Crown Entity and Other Funding

The balance of the Vote ($135 million) is mainly split between:

• $33 million for the Ministry of Transport as departmental funding
• $25 million for Crown entities for outputs. The transport Crown entities receive most of their funding from third party fees and charges
• $26 million for SuperGold card public transport concessions
• $19 million for weather forecasting services from the Meteorological Service of New Zealand
• $18 million for road user charges and fuel excise duty activities which are funded from fees and road tax revenue.

One question that springs to mind is why is the Tauranga Eastern Link need an additional $107 million. Surely that would have been part of the final contracts.

I think it’s really disappointing that the government still refuse to even consider helping fund the CRL, especially the cut and cover section from Britomart to Aotea that Len suggested earlier in the year. I think that section is going to end up being crucial to a whole raft of transport and urban improvement projects in Auckland.

All up for transport there wasn’t anything particularly surprising as it really just more of the same, which also means more roads.

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