Hon Pete Hodgson
Thursday 17 March 2005 Speech Notes

Speech to AA annual general meeting

The AA has always been at the forefront of the transport debate. It is a powerful and valuable advocate for New Zealand's drivers. I appreciate the opportunity you have given me today to update you on the progress we're making in the sector and to listen to your concerns.

I'd like to start with a short recap of recent progress.

Since coming into office, we have transformed transport in New Zealand in three main areas: policy, organisation and funding. The policy started with the New Zealand Transport Strategy and was followed by the Land Transport Management Act.

The organisation part of the triangle was last year's restructuring of the government transport sector. In the meantime, we've tackled funding.

As the Allen report so clearly pointed out, there was underinvestment in New Zealand's road network, particularly between 1993 and 2001. We knew just how bad this was before we took office and worked hard to get things moving from day one. It was
frustrating that project planning was so neglected under the previous government that there were very few projects ready to go ahead in the first couple of years. That's why spending lagged for the first couple of years.

Then we got things moving. The Moving Forward package in 2002 delivered an extra $1.56 billion over ten years. A good start, but it was not enough. In December 2003, we announced the Investing for Growth package that boosted this by another $2.84 billion over ten years, including $900 million from the Crown Account for Auckland. In January we announced a further $225 million boost for Wellington, again from the Crown Account.

This adds up to $18.9 billion over ten years for transport. This is the largest investment in transport the country has ever seen. This year government spending on transport nationally is running at over 50 per cent more than it was in 1999/2000. Fifty per cent more.

While we're on the subject of money, I'd like to lay to rest a few myths.

First, that the government is sitting on a huge surplus that could be spent on transport. This is just not true. The money people point to is already allocated to your superannuation through the Cullen fund or for capital expenditure projects in schools and across the health service. It also includes student loans and loans to District Health Boards as well as money on the balance sheets of SOEs. People say “spend the surplus” on the understanding that there is one. There isn't. The budget in May will make that clear.

The other myth is that money diverted from fuel duty into the Crown Account is not spent on the transport system. Not only is this not true, but the amount that goes into the Crown Account is dwarfed by the transport related costs that are directly paid for out of the Crown Account.

To explain this, I need to talk for a minute about the Ministry of Transport's Surface Costs and Charges Study which was published yesterday.

It gives a snapshot for 2001/02 of the charges paid by the users of the road and rail networks and the costs of those networks.

It shows that users do not meet the full cost of the system, and that some costs are not met by anybody at all; that rail users pay far more of their share than road users do; and that local urban road users pay a far lower proportion of the costs they generate than rural road or State Highway users do.

Some of these costs are significant. Let’s look at health costs.

In 2001/02, $546.7 million of fuel duty revenue went into the Crown Account.

The cost of vehicle accidents not covered by ACC and borne by the health and social welfare systems, met from the Crown Account in that same year were $670 million. But wait there's more. Another $442 million in health costs related to vehicle emissions also had to be met from the Crown Account. Roughly speaking, more than double what road users pay in is paid out from the Crown Account; $546.7 million in, over $1.1 billion out.

The argument around the diversion of fuel duty into the Crown Account is meaningless. It matters little where the money sits, in the NLTP or the Crown Account. Shifting it around does not alter the fact that the amount collected does not cover the costs.

It is utter nonsense to suggest that you can conjure extra money to spend on roading by shifting money between accounts. Today’s petrol tax increase will pay for around $2 billion of new transport investment over the next ten years. If you were to cancel the five cents, you would either have to cancel the planned roads, raise other taxes by $2 billion, or take the $2 billion from spending cuts elsewhere. Again, what’s it going to be – Pensioners? School children? Selling the SOEs?

This government is honest about its spending plans. If we want new transport infrastructure, it has to be paid for. That is why we have been up front about the five cents. That's about $1.60 per week for the average driver.

If other parties support such an approach, they must be honest about where they will take the money from to fill the $2 billion black hole they will create.

The Surface Costs and Charges Study goes on to quantify environmental costs, which rather than being borne by the Crown Account are currently not paid for by anyone. Some of these, like noise, will probably never be directly paid for. Others, like climate change, will begin to be factored in over time. New Zealand, along with 145 other countries, has ratified the Kyoto Protocol on climate change. This agreement means that most of the world no longer ignores the impact on our climate of burning fossil fuels.

Some of the problems identified in the report can be improved far more cheaply than the cost they impose on society. Take congestion for example. The report says it costs around $1 billion a year, most of it incurred in Auckland. Simple and cheap measures can make a big difference. For instance, we are now reducing congestion and improving the flow of some of our State Highways in Auckland by phasing when vehicles join them with on-ramp traffic lights.

Another area of government policy, rescuing rail infrastructure from its disastrous privatisation, is already having an impact on road congestion. Toll and Fonterra recently announced a deal to take 45,000 truck movements a year off the roads.

All of the money from the five cents will be spent where it is raised. It will be distributed regionally on a per-capita basis. But we will need to keep a close eye on costs and timeframes.

The strength of the global economy and international demand for many construction materials. The price of structural steel is up 20 per cent, and precast concrete pipes are up 30 per cent. Crude oil prices have doubled in the last year or so, and with it oil products such as bitumen. These increases are already being reflected in the tenders Transit is getting for new roading projects. Another factor coming into play is "buildability". This piece of jargon means that there is now more work scheduled than there is capacity to handle it. In part, it is a consequence of the strength of our own economy and record employment levels.

Given these new circumstances, it is sensible to take a close look at sequencing of projects.

Many projects that it will fund are safety related. More passing lanes than ever before are being built, junctions improved and roads re-aligned. We spend much more on safety engineering than we do on safety education and enforcement combined. But enforcement of the law is vital.

Drink driving and speeding lead to accidents and cost lives. Easter provided us with yet more tragic reminders of that. I therefore find it disappointing when people attack road policing or say that motorists should not be ticketed when they break our speeding laws.

Education is also crucial and the evidence suggests that attitudes towards drunk driving and speeding are changing.

Before I move on to your questions, I'd like to look to the longer-term future. Two things stand out.

The first is our transport system's dependence on oil, the second is climate change.

Some time this century, probably in the first half, oil supply will no longer be able to keep up with demand – a concept known as peak oil. Some say this point will occur in the 2030s. Others think it will be sooner. Either way, in the future we will be forced to find alternatives to oil, and to use the oil we have more carefully; more efficiently.

Climate change is arguably an even more serious threat. The Kiwi way of life, our environment, and economy rely on our benign climate. A global failure to take steps to limit climate change would be potentially very damaging to us. Vehicle emissions are a significant source of greenhouse gas emissions in New Zealand, so efforts to tackle climate change will inevitably mean change in our transport sector.

Both of these long-term drivers – oil supply and climate change – mean that it is prudent to start becoming less dependent on oil. Increasing the efficiency of our national vehicle fleet and looking to biofuels are just two areas where this government is committed to doing more work.

As with moves to structure our transport system to cope with more expensive oil, improving vehicle efficiency is a key way of reducing greenhouse gas emissions. Hybrid and super efficient diesel vehicles are already available which produce around half the emissions of the average Kiwi car. My government wants to improve their uptake. It is currently a focus for policy development.

I'd now like to take questions. And I've got a few answers to some I know you'd like to ask to start things off:

ENDS

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