05 Sept, 2024

Around the halls of Parliament in Wellington, displays of bi-partisan agreement are reserved for wars, sporting triumphs or the deaths of monarchs. That’s why the coalition government’s sudden enthusiasm for a bi-partisan approach to the building of national infrastructure has seemed less than genuine. After all, if they believe so much in continuity beyond the electoral cycle for projects of national significance, why did they cancel the ferries contract?

Nice as consensus sounds, the passion for it applies only to an agenda of the coalition government’s own choosing. Regardless, PM Christopher Luxon has called for a bi-partisan approach to all the infrastructure deals he has in mind with its corporate partners. Deals for motorways, schools, hospitals, you name it.

In a similar vein, Infrastructure Minister Chris Bishop has called for politicians to be less “political” in their response to such deals. After the government announced its roads-dominated transport package this week, there were more calls for a bi-partisan commitment to these projects beyond the term of the current government. All for the national good, of course.

In essence, the government is asking for commitment in perpetuity to deals that it – simultaneously – wants to “fast track” through the consent process, by bulldozing any objections and limiting the capacity for legal challenge. Along the way, the firms making the deals would do pretty well, which may explain their enthusiasm for consensus:

Nick Leggett, the chief executive of Infrastructure New Zealand, said getting political consensus was crucial for successfully and efficiently delivering new projects. “We aren’t expecting a full-on make-out session between political parties, more just some footsies under the table to ensure certainty for New Zealand’s infrastructure.”

That’s quite an interesting burst of candour. Leggett is calling for footsies under the table for corporate gain, without the public knowing why the political opposition was no longer raising significant objections. As the above link at interest.co.nz also pointed out:

In an effort to create this change, [Chris Bishop] has restructured the various infrastructure agencies and asked the [Infrastructure] Commission to develop a 30-year pipeline of recommended projects.

Meaning: not only will each individual project potentially take decades to complete, the government is talking about creating a 30 year schedule of such projects, thereby tying the hands of future New Zealand governments for the next half century or so.

Flaws in the model

In theory, it may sound desirable for major infrastructure projects to survive changes of government. Yet this requires placing a great deal of trust in a government that is willing – via the fast track process – to bulldoze dissent and limit the capacity for legal challenge. These people need more robust scrutiny, not less.

The favoured funding model envisaged for the major infrastructural deals involves public private partnerships (PPPs) between government and major corporates. PPPs are controversial arrangements. PPPs are intrinsically more expensive than they would have been if central government had borrowed the money and built the project itself, given that governments can always borrow the necessary funds at a cheaper rate.

On top of the public having to pay the extra interest on the private debt that PPPs inevitably incur, the state also has to build in a sizeable profit margin for its partner as well – a margin that again, would not exist if the government was borrowing the funds and building the project itself.

This gap between the cost of Crown debt and private debt is a crucial point – and an inbuilt flaw- with the PPP model. PPPs were used to build both the Transmission Gully and Puhoi to Warkworth motorways. Typically in such deals, the corporate partner designs, finances, constructs and manages the public asset – and the state makes ongoing “availability payments” until the asset returns to public control at the end of the contract period.

At the recent Building Nations seminar in Auckland, KPMG partner Karen Mitchell reportedly cited a hypothetical example whereby if New Zealand used PPPs to build $50 billion of infrastructure, it would be facing extra billions in debt repayments over 25 years. As the (paywalled) Business Desk site reported:

‘Referring to the lower Crown borrowing costs, [Mitchell] said: “The difference between that private sector and public sector borrowing means that we have to extract $25billion of value out of those projects essentially.” [That being the difference between the added cost of private sector vs Crown borrowing over the contract period.]

Given the additional costs inherent in PPPs, the projects will probably be chosen with some methods in mind of recouping the difference from the general public’s use of the asset. On transport infrastructure projects in future, that might well entail road tolls, congestion pricing, and (perhaps) a tax on the capital gain enjoyed by the owners of properties adjacent to the motorways in question. So… because the state has chosen to embrace the PPP option, the public will be picking up the tab for the extra cost, in more ways than one.

Understandably, the public will not be overjoyed at this prospect. As Bernard Hickey recently put it:

[Even though] an extra 50 cents in every $1 spent on building infrastructure is needed to pay higher interest rates on private debt, commuters oppose tolls and no Government or council has successfully taxed the capital gains on land value uplifts around publicly-funded projects.

This being the case, As KPMG’s Mitchell added, New Zealand can afford to embrace only a limited number of PPP infrastructure deals:

“You need to be able to understand what the PPPs do when they hit your operating expenditure ,and what that means for your capacity to do other things. I think there’s possibly a limit from an operating perspective to how many PPPs you can actually stack up.”

Which projects deserve to be at the front of the queue? There is absolutely no consensus on that.

Terms and conditions

Given the above, it’s easy to see why the coalition government might be keen to lock in the opposition parties to the arrangements – which will (a) deliver guaranteed profit returns for decades to the corporates involved and (b) limit the public services on which any future governments might have wanted to spend the revenue. PPPs will suck up the funds any future centre-left government might require to meet social needs.

There is already some pushback. In the interest.co.nz report linked to above, Labour’s infrastructure spokesperson Barbara Edmonds sounded pretty sceptical:

[Edmonds] said parts of the sector had been paralyzed by the Coalition’s abrupt cancellation of major projects.“This Government has halted work on critical transport infrastructure, scrapped necessary school builds, and paused the public housing expansion, creating immense uncertainty for businesses and wasting significant resources.”

That aside, any hope of proceeding on a bi-partisan basis, Edmonds also indicated, would require three conditions to be met:

Infrastructure must consider climate adaptation and resilience, the Crown must retain some level of ownership or control over assets, and iwi Māori must be involved in planning.

Given the government’s virtual dismissal of climate change and environmental impacts, plus its refusal to recognise that it has any obligation to negotiate with iwi Māori as equals…no one should be holding their breath about peace, harmony and bi-partisan consensus breaking out anytime soon. Given Labour’s own weakness for PPPs, it may be more imperative to build a public bi-partisan consensus against the PPP model.

Harris vs Trump polling update

In case the initial sense of relief that we are not necessarily doomed to a second Trump presidency has convinced anyone that Kamala Harris has this in the bag…that’s not what the US polls are telling us, especially in the swing states.

This Vox article shows in detail just how finely balanced this contest still is. Nationally, Harris has a 3% edge, but that is virtually meaningless. In the swing states that decide the presidency, it is still extremely tight: in Wisconsin and Michigan Harris is 1-3 points ahead, but even if she won both, that’s not enough to win the White House.

In the other perennial swing states of Pennsylvania, Georgia, Nevada and Arizona the race is either tied ( Pennsylvania, Nevada) or Trump is slightly ahead (Arizona and Georgia.) In North Carolina, Trump has a miniscule lead of less than one per cent. Currently, Nate Silver’s new Silver Bulletin polling site shows Trump with a 56.7% likelihood of victory, based on a number of contestable premises. We are only a week away from the Harris/Trump debate.

Daily Blues

How to deal with the daily depression, and the procession of fresh outrages? Australia’s amiable King Gizzard and the Lizard Wizzard offer no answers, but in their own retro 70s good vibes way – comparisons to the Grateful Dead and “Truckin” are entirely apt – they fly the flag for love, kindness, and for not letting the world keep you down. Maybe the hippies were at least half right:

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