The demand for quality infrastructure is constant worldwide. Well-designed infrastructure facilitates economies of scale, reduces trade costs, and is vital to the efficient production and delivery of goods and services.
Infrastructure also underpins a country’s economic growth and development, which is a key to raising living standards.
Where the money will come from is the question that governments, the public sector, or even the private sector always ask when funding large-scale infrastructure or when faced with infrastructure projects. Aside from funding constraints, clashes in priorities of various political groups can contribute to the challenges of financing infrastructure.
New Zealand faces a significant infrastructure challenge, with current estimates suggesting a deficit of over NZ$100 billion. If action isn’t taken soon, this shortfall could double by 2030.
Timothy Welch, a Senior Lecturer in Urban Planning at the University of Auckland, emphasizes that the government must seriously approach the nation’s long-term infrastructure needs. He said the key priorities include modernizing water systems to prevent leaks and contamination, enhancing road and rail networks to ease congestion and foster economic growth, and ensuring that infrastructure is resilient against climate change and natural disasters.
The core issue isn’t just about funding; it’s also political. Welch points out that no recent government has adequately tackled the country’s long-term infrastructure challenges.
Funding infrastructure
On 30 May 2024, New Zealand’s Minister of Finance, Nicola Wilis, announced the country’s much anticipated Budget 2024. More than $68 billion will be spent on infrastructure over the next five years, which is substantial capital investment in roads, rail, and other projects.
Congestion, maintenance backlogs, and a looming funding crisis prove the transport network is not exempt.
The New Zealand Infrastructure Commission suggests many options for funding infrastructure. While tax and rates are ultimately the funding sources, pricing and user charges are standard practice in some sectors, while public subsidies are more common.
An article by Dr Matthew Birchall on The New Zealand Initiative says that the root problem lies in the country’s outdated approach to transport funding. “For too long, the country has relied on fuel excise duty to pay for roads. However, as vehicles become more fuel-efficient and electric cars grow in popularity, this model is no longer fit for purpose. Waka Kotahi NZ Transport Agency estimates it will face an annual shortfall of $4-5 billion over the next decade.”
The article notes that the country needs a new approach to transport funding through road pricing.
The article on Asia Pacific Infrastructure says that the New Zealand Transport Agency considers user charging a sustainable tool to help fund transport infrastructure. The Agency announced that it has begun its work on the first seven new Roads of National Significance (RoNS), and officials are seriously considering tolling as part of the funding mix.
Road pricing is based on simple logic: those who use the roads should pay their fair share. The country is already collecting road user charges (RUC) on diesel cars and heavy vehicles weighing over 3.5 tonnes, such as trucks, buses and some trailers.
On 1 April 2024, users of electric and plug-in hybrid vehicles under 3.5 tonnes started paying RUC and EVs weighing over 3.5 tonnes, such as buses and trucks, will begin paying on 31 December 2025.
Tolling, like congestion charging, is controversial in NZ but is a common practice overseas. The article notes that if the country wants modern, first-world transportation infrastructure and reduced traffic congestion, road users must help pay.
When implementing user charging systems on roads, their impact on low-income communities must be carefully considered to gain overall public acceptance and provide various ways the system can limit the burden on these communities.
According to Minister for Infrastructure Chris Bishop, NZ’s infrastructure challenges stemming from decades of underinvestment, poor pricing signals, and a lack of private capital have left our roads, rail, and water systems struggling to keep pace with the demands of a growing population. These considerations also led him to hint at a solution of road pricing.
Source:
Welch, T. (2024, May 23). How to end the wasteful boom-bust cycle driving NZ’s infrastructure gap: new report. The Conversation. Retrieved from https://theconversation.com/how-to-end-the-wasteful-boom-bust-cycle-driving-nzs-infrastructure-gap-new-report-230398
Time to think about user charging. (2024, 26 July). Asia Pacific Infrastructure. Retrieved from https://www.infrastructurenews.co.nz/time-think-user-charging/
Birchall, M. (2024, 20 June). Why We Need a User-Pays Model to Fund Transport Infrastructure. The New Zealand Initiative. Retrieved from https://www.nzinitiative.org.nz/reports-and-media/opinion/why-we-need-a-user-pays-model-to-fund-transport-infrastructure/
Financing and funding of infrastructure in New Zealand. (2023). New Zealand Infrastructure Commission. Retrieved from https://tewaihanga.govt.nz/our-work/research-insights/financing-and-funding-of-infrastructure
Road User Charges system. Ministry of Transport. Retrieved from https://www.transport.govt.nz/area-of-interest/revenue/road-user-charges-system
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