Helen Clark Foundation And WSP Call For Urgent Action To Unlock Funding And Financing For Infrastructure

In a major new research report, the Helen Clark Foundation and engineering consultants WSP are calling for urgent action and a mature national conversation to develop public consensus about how best to fund and finance the country’s infrastructure needs.

WSP Fellow and report author Kali Mercier says Aotearoa New Zealand must invest more to bridge its chronic infrastructure deficit. The public will need to get behind this.

"We have been underinvesting in infrastructure for decades. This deficit affects our productivity and quality of life. This is only going to get worse as trends such as extreme weather from climate change and a growing and aging population stretch our infrastructure to the limit. We need to get serious about closing this gap – we can’t just keep pushing the problem onto future generations and hoping it will go away.”

The report – called Bridging the Infrastructure Gap: Funding and financing for a resilient Aotearoa New Zealand – finds the most efficient and straightforward way to address the bulk of the country’s infrastructure deficit is likely to be by means of long-term borrowing. Most of the resulting debt burden will need to be funded through taxation and rates. User charges and other revenue generation should also play a part.

The report considers who should pay – for what, when, and how – to achieve the most efficient and equitable outcomes. Kali notes that different funding and financing options spread the cost burden in different ways. Questions of intergenerational fairness are important, as are decisions about how to spread the costs between current members of society who may ‘consume’ more or less infrastructure, or who may be more or less well off. Taxation as a funding tool has the advantage of being both efficient and in most cases reflects a person’s ability to pay.

"Finding ways to build revenue opportunities into new infrastructure can help fund more infrastructure, now and in the future, and can help get projects off the ground that may otherwise not happen at all. Revenue-generating options include road tolls, user charges (on water usage, for example), targeted rates, and development contributions.

“With the country facing a massive infrastructure bill and a long lead time to overcome our deficit, it's going to be especially important to get better at protecting infrastructure funding from political cycles and keeping ideology out of the decision-making process. The country must find common ground about how to pay for what it needs by developing a strategic, long-term vision, with - as far as possible - multiparty agreement. The goal should be to break the boom-bust cycle and ensure consistent investment levels across terms of office. That way, projects can be identified, sequenced, and paid for over realistic timeframes without political u-turning.”

WSP director of investment Vinny Minett says New Zealand needs to do a better job of recognising which funding, financing and delivery approaches work best for various kinds of infrastructure.

"An approach should be chosen through a structured, independent process, taking into account both qualitative and quantitative factors, while considering the unique characteristics of a project. There’s no one-size-fits-all. The benefits and specific risks of each project should be carefully considered and matched to the most appropriate procurement model."

The report notes the Government's proposed restart of a public-private partnership (PPP) programme. While PPPs haven’t seen widespread adoption here, they tend to evoke strong opinions – both in favour and against.

International evidence shows that private finance can bring benefits for the right projects – for example by reducing cost and time overruns, which can save significant sums. However, these arrangements are complex and can come with heightened risk due to their long-term nature.

"Our hope is that the evidence presented in this report will kickstart a much-needed conversation about public and private infrastructure funding and financing in New Zealand – ultimately helping us chart a course towards a more prosperous future and positioning us as a global leader in infrastructure delivery.”

Key report recommendations include:

· Seek agreement across political parties, to the extent possible, on a strategic long-term vision for the country’s infrastructure needs.

· Get more from infrastructure investment, including better value from procurement and delivery of infrastructure and focus on maintaining and optimising the use of infrastructure the country already has.

· Use a range of approaches to fund and finance infrastructure but recognise that the bulk of the country’s needs will continue to be financed by debt and serviced by taxation and/or rates.

· Identify opportunities to attach revenue sources to new infrastructure, particularly where this will lead to additional benefits.

· Ensure decisions around which funding and financing models are used consider questions of equity, efficiency, and effectiveness.

· With the proposed restart of the public-private partnership (PPP) programme in Aotearoa New Zealand, learn from experiences here and overseas to ensure the best application of this model.

· Trial city and regional deals, which can promote growth and enable investments in essential infrastructure projects that might otherwise go unfunded.

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