Last week the reserve bank dropped the official cash rate to its lowest ever level in a bid to spur growth and keep inflation within its target band of 1-3%. What is unusual is the RBNZ Governor also took the step of calling for the government to increase spending on infrastructure in Auckland.
“A lot of the focus tends to be on monetary policy to work out price output splits for an economy to try to get some demand growth and output growth and also maintain low inflation,” Wheeler said.
“One of the issues is what role can fiscal policy play,” he said.
“One could mount a case for saying there’s the potential to have more infrastructure spending around Auckland.”
Wheeler said the economy was generating output worth NZ$230 billion a year.
“So some capex expenditure by the government could well be helpful to try and reduce excessive capacity in the economy and, from our point of view, reduce the output gap and build inflation pressures, so that would be something that would be helpful.”
He also talked about it on Radio NZ’s Morning Report on Friday
Or listen here
So basically we need infrastructure and policy changes to unlock capacity and make it easier to increase the supply of housing in Auckland. It’s an interesting move from the RBNZ as I can’t recall seeing them making such a suggestion ever before. Infrastructure is quite a broad area and includes things like schools, hospitals, emergency services facilities etc. but of course one of the most crucial areas highlighted is Transport.
Even if the government agreed and decided to increase spending on transport infrastructure actually doing anything is likely much more difficult. Many of the projects that may want to accelerate suffer from the same problem, they’re nowhere close to being ready for construction. Many of them are just ideas on paper and haven’t been consented actually been designed. Take the Additional Waitemata Harbour Crossing as an example even if the government decided to fund it as soon as possible it would still be years away before any sod is turned as the project hasn’t even been designated yet. By the time they got to the point of getting the diggers out we’re likely to be in a different stage in the economic cycle.
Combined with the fact the government is already accelerating a number of motorway projects this means any focus would likely need to be on projects that can be designed and consented quickly or projects which are almost shovel ready. To me this means any spend up on transport infrastructure is likely to be focused on quick things like cycleways – which implementation teams are already going to struggle to use all the funding currently available – or other small local road projects.
That leaves large projects and currently there aren’t too many of those in Auckland’s plans that are close to being shovel ready – but there do happen to be a few interesting ones. The first is of course the City Rail Link which already has consent, the first stage is underway and design work is ongoing for the main works which still needs construction funding approved.
Another big exception I can think of is likely to be Auckland Transport’s light rail plans. This is because for the most part the light rail proposal uses the existing road corridor and is just a reallocation of road space so I suspect that the consenting – if any is needed – would be much faster and easier.
Bringing forward both of those projects would make for welcome announcements.